A Buoyant Outlook

The GE Shipping Co Ltd

Rs 500 million

Non-Convertible Debenture Programme: AAA

Fixed Deposit Programme

FAAA

Rs 150 million Commercial Paper Programme: P1+

Rationale: An AAA rating has been assigned to the Non-Convertible Debenture Progra-mme to The Great Eastern Shipping Company Ltd (GES-CO) indicating highest safety regarding timely payment of interest and principal. An FAAA has been assigned to the Fixed Deposit programme of GESCO indicating that the degree of safety regarding the timely payment of principal and interest is very strong. A P1+ rating has been assigned to the Rs 150 million Commercial Paper programme indicating that the degree of safety regarding timely payment on the instrument is very strong.

GESCO is a diversified company engaged in shipping, property development and commodity trading. Shipping constitutes the largest segment of the company's business activities accounting for nearly 50 per cent of the total income during 1994-95. The company is one of the largest private sector players in the domestic shipping industry with a fleet deployment of 42 vessels which includes a mix of 19 bulk carriers, 12 tankers and 11 offshore Supply Vessels (OSVs).

A majority of the GESCO's bulk carriers are in the handymax/handysize segment (upto 60,000 dwt). The company is strongly placed in the handymax business segment which is significantly less prone to earnings volatility agains the capesize and panamax segments (over 60,000 dwt). The handymax segment has relatively stable earnings on account of its dependence on a variety of industries/trades unlike the larger capacity capesize and panamax vessels which are dependent on industries requiring large tonnage movements like ore, steel etc. Further, GESCO has deployed almost all of its bulk carrier fleet on a time charter basis which results in a more predictable earnings stre-am than voyage charters since contract rates are fixed for specific time periods. Thus, this combination of the segment which GESCO operates in and the type of charter it enters into, lends a considerable degree of stability to the earnings of the division.

GESCO is strongly placed in the product tanker business and is a recipient of the ISO 9002 certificate. The tanker division employs most of its ships under time charter with the Indian oil companies such as Indian Oil Corporation, Bharat Petroleum Corporation, Hindustan Petrole-um Corporation for the transfer of crude and oil products. Crude carriers are operated on a cost-plus basis while product carriers are operated on yearly contracts with built-in clauses for foreign exchange variations. This insulates the division from the vagaries of the tanker market and ensures a steady flow of income. GESCO's market share of Indian product tanker business is high at around 37 per cent and the main competitors in this segment are Shipping Cor-poration of India and Essar Sh-ipping. GESCO is a marginal player in the crude oil segment which is dominated by the Shipping Corporation of India.

The OSV division of GESCO has most of its vessels deployed under time charter with ONGC. Some of these vessels were built exclusively to the specifications of ONGC. GAL Offshore Servi-ces (GAL) is a subsidiary company of GESCO operating mainly in drilling and marine construction business. GAL has two rigs which were designed to suit ONGC's requirements and are deployed with the ONGC. To strengthen its presence in the offshore services segment, the company has recently decided to merge GAL into GESCO.

Considering the high costs and time involved in new ship building, it is necessary for shipping companies to acquire and sell second hand ships from time to time to maintain their fleet. Timely sale of ships also contributes considerably to the bottomline. The management has successfully identified such opportunities and utilised them to their advantage. GESCO expanded its fleet at a time when ships, second hand in particular, were available cheaply during the early eighties. Conseque-ntly, the market value of the company's fleet is significantly higher than its book value.

GESCO's property development division has over the years established itself as a highly professional property developer through quality constructions, strong project planning, implementation, monitoring and control systems and handing over possession without significant delays. The property development division has judiciously spread its risks by undertaking both residential and commercial property development activities in six cities and in different price ranges. The division has sought to protect itself against operating and legal risks by adopting a conservative lad acquisition policy. Further, the strategy of self financing of construction phase has helped reduce its dependence on borrowed funds and hence interest costs. GESCO also has the advantage of having acquired most of the properties prior to the large real estate price rise which took place over the last two years. Consequently, the cost per sq. ft is significantly lower than the sale price per sq.ft. giving it a sufficient margin of safety against any adverse variations in prices. The company presently has about 23 commercial and residential projects under construction, for an aggregate area of 3.5 million sq.ft (approx). with a total cost of about Rs. 11,500 million. The division has performed well during 1994-95 with an increase in income to Rs 635 million in comparison to Rs 338 million during 1993-94. Operating profits from the division also increased from Rs 178 million in 1993-94 to Rs 386 million in 1994-95.

With the merger of A H Bhiwandiwala & Company (Bombay) (AHB), GESCO started trading in agro-based commodities such as cereals, pulses, spices, oil seeds, sugar, dry fruits and coffee. Although the commodities trading activity of the company experienced significant growth in terms of turnover, the division incurred a loss during 1994-95. This was primarily onottom.inc"-->