No significant capex for GE Shipping in FY18: Bharat Sheth

Interview with Bharat Sheth, Deputy chairman and MD, Great Eastern Shipping Company

There is a correction in this interview, which can be read at the end of this page.

At a time when the industry is going through a difficult phase, Great Eastern Shipping Company (GE Shipping) has aggressively acquired 14 ships, and increased its fleet size to 45 in 2016-17. Bharat Sheth, deputy chairman and managing director, tells Aditi Divekar and Rajesh Bhayani that the best time to buy assets is when prices are at a multi-year low. Edited excerpts:

What is your reason for aggressive asset creation in FY17? 

We spent around $350 million (or about Rs 2,250 crore) in FY17 to buy 14 vessels in the shipping segment. Ships are best bought when markets are at their worst and that is precisely what we did last year, and purchased second-hand vessels at 20-30-year low prices. Also, at this juncture, there is enough supply in the global market and buying second-hand made more sense. 

What is your FY18 capital expenditure (capex) for shipping and offshore businesses?

For FY18, there is no significant capex, as the value of some vessels has started going up. Since we are not able to foresee an immediate turnaround in the offshore segment, there is no plan to increase the fleet size for the next two years. In fact, we are slightly more leveraged in offshore business than we would like to be and so will focus on lightening the balance sheet. Currently, the company's total balance sheet size is in excess of Rs 15,000 crore.

What is your target debt/Ebitda (earnings before interest, tax, depreciation, and amortisation) for GE Shipping. What about the debt repayment schedule?

In our business, since freight rates are extremely volatile, Ebitda keeps varying and cannot be predicted. Due to this, we do not keep a target debt/ Ebitda. However, we always look at net debt in the worst-case scenario and try to maintain a particular ratio of debt to the lowest asset value in that cycle. 

In this manner, the balance sheet is conservatively managed. Today, GE Shipping has borrowed at some of the best rates in the global market. Our consolidated net debt stands at Rs 3,500 crore, with offshore carrying about Rs 1,000 crore of it. In offshore, there are no big repayments in the near term, but in shipping, we do have some maturing between FY18 and FY20. 

How difficult was it to hire the crew for the new vessels?

There was a total requirement of 600 seafarers on these 14 vessels. These employees come with specialised skills and it is crucial to get good people but there is no huge line of Indian seafarers. Plus, hiring seafarers in India is slightly costlier than overseas. That's not all, due to restrictions set by the government, Indian shipping companies cannot hire foreign nationals on vessels and so Indian shipping companies do not enjoy freedom of choice like other countries have. Given this environment, hiring at acquired vessels was a challenge and we are settling down only now. 

How does GE Shipping manage its operating expenses?

We can easily lower our operating expenses but are not overly worried about them. We do not cut corners on maintenance of vessels. It is much more important for us to have high-quality assets even if they do not give us immediate returns. We have taken a position in the market where we are particular about getting the best deals but are not obsessed about getting cheaper assets. 

Does your fleet meet the new International Maritime Organization's (IMO's) Ballast Water Management Convention effective from September? Most of your assets are second-hand vessels… 

A number of our 14 acquired vessels meet the ballast water norm of IMO. For the others, which don't, we have worked out a timetable. Since a lot also depends on the survey dates for these vessels, for many of them we will not require to do anything till 2021-22. 

Can India become a large job-generating maritime nation if it houses world-class shipyards to compete with countries like China and Japan?

Today, India does not need a shipyard at all. It was a different story in the 1950s and 1960s when there was not much automation in the industry. Today, with all the technological advancements, a shipyard would not generate the employment vis-à-vis the capital that goes into making it. 

Also, India is a capital-starved country. Hence, it makes more sense for the country to focus on providing shipping services rather than building ships. Currently, there is so much surplus global capacity. Maritime nations like China, Japan and (South) Korea, all are bleeding and respective governments have had to bail them out. We do not want to increase our non-performing assets (NPAs) at this juncture.

Correction: Bharat Sheth was quoted as saying that the company spent Rs 3,500 crore in FY17 to buy 14 vessels in the shipping segment. The company has clarified that it spent $350 million or about Rs 2,250 crore. The error is regretted.