Domestic dredging cos struggle to get long-term funding

In the past, banks have burnt their fingers having lent to the shipping industry

The government has been enthusiastic about giving a push to maritime development but port expansion is likely to run aground as domestic dredging companies are finding it tough to get funds.

Banks and financial institutions not keen to fund shipping and shipbuilding sectors. Dredging companies, too, are finding it difficult to raise funds from the domestic market.

“Banks are simply reluctant to lend (to this sector) on a long-term basis,” said Prasad Patwardhan, chief financial officer at Mercator. “Funding tenure needs to match dredging contract period, which is usually for 15-20 years. But banks have been approving only medium-term funding of three-five years. This is making it difficult for dredging companies to raise funds and tap the ample business opportunity.”

Mercator focuses on maintenance dredging and owns nine dredgers.

Dredging is an excavation activity carried out underwater to keep waterways navigable. Capital dredging is usually required for new port facility, unlike maintenance dredging which is needed to maintain the draft level for ships.

Banks are once bitten twice shy, as far as lending to this sector is concerned. “Dredging comes under the shipping sector and banks have burnt their fingers after having lent to this industry,” said Senthil Kumar, founder of Chennai-based Swalf Dredging. “Getting a loan sanctioned for dredges is an unending process.” The company has been trying for the last three years to get a Rs 5-crore loan to buy a dredger.

Bankers’ reluctance has compelled domestic dredging companies to look at overseas funding, exposing them to currency fluctuation risk. “Domestic lenders are not willing to lend and so we raised funds from overseas market in dollars. Our revenue, however, is in rupees. This puts a strain on the balance sheet and also leads to the company taking currency-fluctuation risk,” said Patwardhan of Mercator.

Besides, domestic dredging businesses also has to deal with high operating costs. Absence of in-house technology puts them in a disadvantageous position when competing with foreign firms, which offer services 25-35 per cent cheaper. “Bank interest, taxation and operating costs are far higher for domestic dredging companies, making it difficult to remain competitive in the market,” said Kumar of Swalf Dredging.

Moreover, no Indian shipyard makes dredgers. Due to this, domestic companies buy equipment from overseas market at additional costs. “There is a need for technology transfer in the dredging segment. Buying dredgers from overseas is an expensive exercise for domestic dredging companies,” said an official with Dharti Dredging & Infrastructure.
 

Ocean Sparkle, among the private companies, and state-owned Dredging Corporation of India (DCI) are the biggest dredging companies in the domestic market engaged in capital as well as maintenance dredging works. DCI has been enjoying the most comfortable position in terms of order book, compared to peers and its operating profit too has been on the rise since the last three-four years. The company's debt-equity ratio is well below one as against a more diversified Mercator which has its debt-equity ratio of 1.33 as on March 31, 2015.

With the funding situation remaining stiff amid cheaper services by foreign players, industry officials said diversification and deployment of dredges overseas instead of the domestic market could help them maintain margins. “India has huge business opportunity in dredging, but other business factors also need to be friendly. Dredging in overseas market yields us more than double at present and, hence, dividing dredges between domestic and overseas market can help protect margins,” said Kumar. The company has dredges deployed in West Asia.
HOPING FOR A CHANGE

• Banks reluctant to lend for 15-20 year tenure
   
• Foreign dredging companies offering services 25-35 per cent cheaper than domestic players
   
• Bank interest, taxation, far higher operating costs make domestic dredging companies non-competitive
   
• Currently no Indian shipyard makes dredgers
   
• Technology transfer needed in dredging segment