Varun Shipping changes debt-cut plan

Scraps idea of exiting very large gas carrier market but keeps that for leaving the offshore segment

Varun Shipping, India's largest liquefied petroleum gas (LPG) tanker operator, has scrapped its plan to exit the very large gas carrier (VLGC) market.

It had intended doing so to reduce its debt load. The earlier decision was to exit the VLGC segment by May this year. The bullish outlook for LPG vessels globally has led it to change its mind.

"Since demand for LPG is picking up, charter rates are going higher in this segment," Yudhishthir Khatau, chairman and managing director, told Business Standard.

"Second, since the dry-docking for Maharshi Bhardwaj (its second VLGC vessel) has already been done, it makes more sense to charter the vessel than sell it off. After all, we have already spent on dry-dock repairs." Dry-docking costs $2-3 million (Rs 12-18 crore) a vessel. The rules say this has to be done twice every five years, with the interval not to exceed 36 months.

CHANGE OF PLAN

• | Varun Shipping is India's largest liquefied petroleum gas (LPG) tanker operator
• It had intended to exit the very large gas carrier market to reduce itsdebt load
• The bullish outlook for LPG vessels globally has led it to change its mind
• The exit plan remains intact as far as the company's offshore segment is concerned and it intends selling its AHTS in a span of one year

Mumbai-based Varun Shipping had two VLGCs until February. In March, it sold its first VLGC, the Maharshi Vishwamitra, to shipping company Mercator for $30 million (Rs 180 crore). Since then, Varun was on a lookout for a buyer to sell its second vessel for around the same amount.

As on June 30, the company's total debt was Rs 2,940 crore. Varun Gas, India (the company for its LPG vessels), carried about Rs 1,500 crore of loan and Varun Asia, Singapore (company for its crude oil tankers), and Varun Cyprus (for the anchor handling and towing supply or AHTS vessels) having about $120 million (Rs 720 crore) debt each.

Despite the change of plan, the company's aim continues to be selling assets to reduce its debt. "As far as the off-shore segment is concerned, our plan is intact and we intend selling our AHTS maybe in a span of one year," said Khatau.

Earlier, the company had planned to exit its offshore business by September 2014. Currently, Varun has three AHTS vessels, three crude oil tankers and nine LPG carriers, which include the single VLGC, Maharshi Bhardwaj.

"Not that there are no buyers for the VLGC or even the offshore segment of Varun Shipping but the problem for the company is that they are not getting buyers who will pay them the right price," said a banking source close to the development. "Buyers know the seller is desperate to sell and so they are trying to take advantage of the situation."

Increased American export of LPG amid higher shale oil production is boosting demand for ships carrying gas. Also, the charter rates of gas carriers are seen as robust due to seasonal strength in export of the American LPG.