Privatisation may affect SCI's decision-making powers, shipping market

The central government’s plan to privatise Shipping Corporation of India (SCI), after years of uncertainty in this regard, could, if coupled with no or delayed corporate action on the ground, affect the business in the long run, say many in the sector.
 
“Once the divestment news was out, virtually all decisions in the company came to a standstill. To top it all, long-term contract customers are having a rethink and the business situation will eventually becomes chaotic,” a former chairman of SCI told Business Standard on condition of anonymity.
 
In April 2003, the Cabinet Committee on Disinvestment had decided to suspend any divestment in SCI. Now, however, the process has re-started, with foreign companies being allowed to acquire the entire 51 per cent stake put on the block by the government.
 
As on September 30, the had a 63.75 per cent promoter stake in SCI. The other 36.25 per cent is public shareholding. “This is not the first time SCI has announced divestment plans. Last time (in 2003), virtually all decisions stopped. This kind of gear changing time and again costs the company dear in the long run. The government needs to take note of this,” the former chairman added.
 
According to the firm website, its fleet size was 60 vessels as on February 2019. It has tankers, bulk carriers, liners and offshore supply. “What happens commonly during a divestment buzz is that buying and selling of vessels gets impacted, as investment decisions get affected to great extent,” said Anil Devli, chief executive officer at Indian National Shipowners' Association.  A senior official in GAIL India says his company has an ongoing contract with SCI for management of shipping services. "Earlier, we would place contracts on the national shipping carrier on nomination basis. But, once it is privatised, the company will be treated just like any other private shipping company," he added.
 
At the close of 2018-19, the company’s cash and cash equivalents was a meagre Rs95 crore, down from Rs2,625 crore in 2006-07, the pre-global financial crisis period. Since consolidation in FY15, which included a subsidiary and six joint ventures, it cash and equivalents have been falling.
 
Company officials operations have not been affected by the divestment plan. “For us, business is as usual. Our fleet is also ready for IMO 2020 (the new global maritime rule changes on polluting fuels). We will be using lower sulphur fuel entirely, with no scrubber fitting for any our vessels,” said a senior official with the bulk carrier department. An e-mail to the SCI spokesperson remained unanswered.
 
The government has appointed RBSA as transaction advisor for the strategic sale. Last week, it was also announced that H K Joshi had been appointed full-time chairman and managing director.
 
There are seniors in the industry who are against a divestment only for lowering the government's fiscal deficit.  Says Ranjit Singh, executive director at Essar Shipping: "A national carrier like SCI is an important reserve for the government from the energy security point of view. SCI is the country’s reserve tonnage. Its privatisation will impact the Indian shipping market, already only one per cent of the world shipping market.”
 
The company’s presence in the Very Large Crude Carrier (VLCC) and Liquefied Natural Gas (LNG) segments is a positive for its business, along with long-term contracts with Indian Oil Corporation and Bharat Petroleum Corporation, among others, said industry officials.
 
“The company also has a very good talent pool but bureaucratic interference often leads to SCI missing the bus on important business decisions. Also, the tenure of a chairman is not more than two-three years, which does not help. By the time, the chairman takes office and gets familiar, it is time for retirement,” said the former chairman of SCI.

 
Great Eastern Shipping and Essar Shipping are other Indian shipping companies with presence in dry bulk and liquid cargo.  “The company needs freedom in decision making. It is not that bad a situation for them, as they also have good talent in-house,” said Singh of Essar.