Govt Decides To Dilute Stake In Sci To 51%

The government has decided in principle to bring down its equity holding in Shipping Corporation of India (SCI) to 51 per cent. SCI is likely to be included in the list of companies to be transferred to the proposed special purpose vehicle (SPV) to be set up by financial institutions.

Official sources said the proposed bonus issue by the shipping major had been put on hold as it could result in an erosion in the earnings per share and the price that could be realised from the market. Currently, SCI has an equity base of Rs 282.3 crore and an earnings per share (EPS) of Rs 8.7.

A bonus issue at this juncture may result in doubling the capital, thereby halving the EPS. At an industry price-earnings ratio of 3, the realisable price would work to around Rs 26 per share. SCI is classified as a mini-navaratna and ranks among the most profitable public sector undertakings.

Till now only about 18 per cent of the government's holding has been divested through two tranches in 1992 and 1993. The entire block of this 18 per cent is held by the Unit Trust of India and other financial institutions.

SCI has also put on hold its proposal to make a domestic public issue to the extent of 5 per cent of the paid-up capital, which translates into about 141 lakh shares, at a price of about Rs 20 per share. It planned this issue as a prelude to an entry into the global depository receipts (GDR) market.

The feeling now is that SCI is not in a position to fetch better returns than the current market price, in view of a recent agreement with the Oil Coordination Committee for transport of crude from West Asia.

Almost half of its fleet is product and crude tankers. The current pricing negotiated with OCC allows SCI to price transport at about 20 basis points over the Aframax index for tankers. This means SCI will have a time charter of one year of assured earnings.

This agreement with OCC is renewable for five years and allows SCI to take advantage of the increases in crude tanker freight tariffs. This means at least 50 per cent of its fleet will be fully utilised during the period.

SCI charters foreign crude carriers to meet the shortage of capacity. It charges a commission of 2.5 per cent of the rental of such charters that provides it with additional income.

However, the non-tanker fleet does not have such an assured income source. Petroleum product carriers and dry bulk carriers face an uncertain income stream since they have to bid for time charters from public sector undertakings. Sources said what was keeping the price of the SCI scrip down is the low Baltic Freight Index, which means that bulk carriers in its fleet have a very low earnings capability.