Financial Daily from THE HINDU group of publications
Wednesday, Jun 15, 2005
Mergers & Acquisitions
Logistics - Shipping
SCI scans the horizon for acquisitions
Mumbai, June 14
WHAT do you do when you are sitting on shareholders funds worth Rs 3,688 crore and you are desperately looking to buy ships to cash in on the firm freight market, but there are no new ships available in the global market at least till 2008?
You look for smaller companies having sizeable fleets of ships to buy them out.
At least that is what Shipping Corporation of India (SCI) is now looking at. Till recently, the debate in the shipping circles was who will acquire SCI. But today, after the Government dropped its plans to sell SCI, India's shipping giant is about to change the syntax of the debate to which shipping companies it would buy. That is, if its proposal to acquire foreign shipping companies is accepted by the Government.
Informed sources said SCI's board, which met on Monday, approved a proposal envisaging acquisition of smaller shipping companies as one course to briskly expand its fleet. The proposal has been sent to the Government for approval.
SCI, which is sitting on cash reserves of Rs 3,406 crore and capital of Rs 282 crore, has not earmarked any amount for the proposed acquisition and will set the ball rolling once the Government gives its in-principle approval. The company at present has a debt-equity ratio of 0.6.
SCI is hungry to buy ships, but finds only narrow avenues to make the acquisitions. For one, all global shipyards cannot book new orders at least till 2008 reports indicate that up to 45 per cent of the world's container fleet and 20 to 25 per cent of the cape-size fleet will be added in new capacity by 2008. Then, the company, as a policy, does not go in for second hand ships, as it fears that such deals may be questioned by the Government.
But, it is increasingly feeling the need for fleet acquisition. During the last two years, its fleet strength suffered some depletion, as it was unable to make any major purchases due to the Government's uncertainty on its privatisation proposal. In the last two years, when private shipping companies were on an acquisition spree, SCI had to dispose of 15 aged vessels, but could acquire only four, which brought down its fleet strength to 83 vessels.
Secondly, informed sources said, the company has to renew almost one-third of its existing fleet in the next two or three years due to the age factor, which means it has to start acquiring new ships now.
"At this stage, the piece-meal approach of buying ships is not very viable, as it takes longer time and then the prices shoot up. The best alternative for the company is to go for bulk purchases," the sources said. Earlier, SCI had proposed to the Government that it be given a block approval for its $1-billion acquisition programme, involving purchase of 14 vessels in the course of the next few years, to save on time that is lost in getting piece-meal approvals.
But, not getting a response from the Government yet, SCI's board has sent another proposal, envisaging buying of overseas companies having fleets that suit its requirement. SCI believes that there are prospective shipping companies for take-over in countries such as Singapore, Hong Kong, Russia and in West Asia, having a fleet of five to 10 ships. This could give SCI immediate access to expanding its fleet.
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