The tide is turning for Varun Shipping

Firm expects LPG business to be back on track by June; to split into two listed entities by end-May

Debt-ridden Varun Shipping expects the tide to turn as its entire fleet of liquefied petroleum gas (LPG) carriers are scheduled to be operational by June.

That's great news for the Mumbai-based shipping company, which runs one of the world's largest fleet of LPG vessels. The company's nine LPG carriers had stopped working after the Directorate General of Shipping withdrew the document of compliance after it failed to dry-dock its ships. Varun Shipping, thus, had the dubious distinction of becoming the first Indian shipping firm whose operating licence was cancelled.

It happened because Varun Shipping did not have the money for the mandatory dry-docking of ships for safety reasons. No bank was willing to put in any extra money as the promoters were in no position to repay loans, which touched well above Rs 2,000 crore as on March 30, 2015. To top it, the company stopped paying salaries to its employees, with the result that it was unable to find replacement for the crew which was on board for longer than the contract period.

OUT OF STORM

• Bankers stopped giving loans after the company defaulted on repayment
   
• The company lost licences to operate LPG ships as dry-docking was not done
   
• The company was unable to pay salaries to employees
   
• Bankers choose Joint Lenders Forum route to help the company
   
• Promoters brought short-term finance to activate dry-docking of vessels
   
• Firm has been paying salaries on time for a year

Things are, however, changing for the better. "After promoters brought in short-term finance and activated dry-docking for these vessels, things have smoothened out," Yudhisthir Khatau, managing director of Varun Shipping, told the Business Standard, without revealing the size of the funds pooled in.

"Three of our LPG vessels are already operational now; another one will come on board by end-April and the balance will be operational by June. All our three-tanker vessels, which are under dry-docking, are also going to be operational again by June," said Khatau.

After the activation of the three LPG vessels during the October-March period, Varun Shipping has clocked over Rs 175 crore revenue, compared to nil revenues in the June and September quarter.

What has helped is that charter rates in the LPG segment have moved up to an average Rs 35,000 a day from Rs 25,000 earlier because of better demand.

Varun Shipping runs its crude oil tanker and offshore businesses via Varun Asia and Varun Cyprus, respectively. The two divisions, however, are not the subsidiaries of Varun Shipping and, hence, the earnings reported by the company are only that of the LPG division.

While the firm tries to get back its revenues flowing, it has also managed to fix the debt issue by seeking bankers' help via the Joint Lending Forum (JLF) route, unlike the earlier plan to go for corporate debt restructuring (CDR) way.

For the past two years, about 50 percent of the company's operating profits were eaten up by interest component, making it a loss-making entity.

"As the business was coming back on its feet, banks decided that they would not take the CDR route and instead restructure the debt and give us additional funds through the JLF. Banks have given us Rs 425 crore towards operationalisation of vessels," said Khatau.

Under the JLF, the company gets a one-year moratorium period with halving of interest rates to six per cent. The repayment tenure will remain at eight years.

Varun Shipping claims it has resolved the salary issue as well. According to Khatau, salaries have been paid 'normally' for the past year, although "the arrears are yet to be settled".

Varun Shipping will be split into two listed entities -Varun Resources and Varun Global. While the former will hold the LPG business of Varun Shipping, the latter will be into ship management. "Ship management is a business in itself and so we feel the necessity to list it separately," said Khatau.

All approvals needed to list the two entities are in place and Khatau hopes the process will be over within a month.