'Cost of borrowing is a concern for us'

Q&A: V Ashok, Director and CFO, Essar Shipping Ports and Logistics

Essar Shipping Ports and Logistics (ESPLL), formerly known as Essar Shipping, had posted a 74-per cent drop in its net profit during the third quarter ended December 2008. The Essar group company's drop in profit was mainly on account of higher interest outgo for the port business. Though the Ruias-owned company has not had any contract cancellations, ESPLL's Director and Chief Financial Officer V Ashok tells Kalpana Pathak the times are tough indeed. 

How has the current meltdown impacted your capex plans?
We have planned a capex of $2.3 billion (approximately Rs 10,000 crore) for the next three years right across all our businesses. We have so far tied up a certain portion of the debt and for the rest we will tie up as and when required. 

Tying up for funds is a concern but looking at our balance sheet, track record and our access to banks in India and offshore we are not worried about liquidity, though cost of borrowing is a concern. 

ESPLL has placed orders for 25 ships. Are you facing any problem with regard to liquidity arrangement?
We have 25 ships in the shipping side in the dry bulk and crude oil transportation segment. We have one crude oil terminal running at Jamnagar (in Gujarat) and one dry bulk port coming up at Hazira and another at Salaya near Jamnagar. We see a lot of opportunity for growth, especially in the ports and terminal segment. 

We will be completing expansion of crude oil terminal from 10 to 34 million tonnes in the next three years. We do about 30-40 million tonnes of cargo today on an annualised basis and going forward, this will go up once our capex plans are in place. 

The domestic ship industry prefers borrowing from European banks, which are skeptical of lending at present…
Most of our borrowings are from specialised shipping banks but we have not faced any difficulty in raising funds so far. However, due to the global credit crisis there are banks that have slowed down on credit disbursement and have said they will look at fresh disbursements during the first quarter of 2009 and beyond. They are not sure if their loan to the borrower is safe.

Experts say trade through shipping has come down from 40 per cent during mid-1980s to 12 per cent at present. Your comments...
We have come across instances where owners are complaining that they are not able to recover their operating cost and the ships are being laid-off. If a capesize bulk carrier with an operating cost of $6,000-7,000 per day does not give us the returns, there's no point running the ship at all. 

When the market was good the return was as high as $200,000 per day. Today the dry rate is between $10,000 and $15,000 per day, just about covering the operating cost.