Sci Defers Gdr, Domestic Floats
Shipping Corporation of India (SCI) has deferred its foray into the domestic equity and global depository receipts market. It was expected to enter the market during the second half of this year.
The corporation had sought permission early this year for a domestic equity issue equivalent to about 5 per cent of the paid-up capital which would have translated into approximately 141 lakh shares. This was planned as a prelude to the GDR issue so that the corporation got a benchmark price before entering the international market.
However, according to SCI chairman and managing director P K Srivastava, the current market price was not attractive after the Moody's downgrade and the huge discounts for Indian GDRs. Moreover, shipping indices have registered a steep drop recently with the Baltic Freight Index falling to 828 from 955 in February this year and 2,100 in 1995.
The SCI had planned to enter the market with a $125-150 million issue.
The corporation is, however, expected to make more money from its tanker fleet despite the discontinuance of the cost-plus formula from April this year. The formula guaranteed minimum earnings based on a 12 per cent return on equity.
"The removal of the cost-plus formula has not hit us in any way and our earnings from our tanker fleet has actually increased," Srivastava said. He, however, added that the pricing of debt in the markets was also on the high side and acquisition targets during the current year were likely to be adversely affected. "We have sought permission for a waiver of the five-year maturity profile clause so that we are in a position to meet our acquisition target," he said. This is necessary to take advantage of shipyard credits which have shorter maturities of about four years but with more attractive pricing, he said.
However, the cost of raising debt funds for longer maturities had increased considerably since the downgrading, he added.
At present, the average spreads demanded from Indian issuers are in the range of 400-450 basis points over the London Interbank offered rate. Yard credits, on the other hand, are priced lower and sometimes offered on fixed rate terms.
The planned SCI acquisition was in the region of two lakh deadweight tonnes during the current financial year and about 1.95 million deadweight tonnes for the Ninth Plan period. This includes both replacement tonnage and new additions to the fleet, including specialised vessels like ammonia/LPG carriers and chemical (acid) carriers.
The entire acquisition was proposed to have been funded through internal resources and borrowings.