Korean Currency Crisis Adds Wind To Indian Shipyards Sails

The South Korean crisis has proved to be a boon for the beleaguered domestic ship building industry.

The Shipping Corporation of India Ltd (SCI) has placed orders to purchase one tanker from Cochin Shipyard Ltd and two bulk carriers from Hindustan Shipyard Ltd.

The domestic shipyards have gained the orders at the expense of Koreas Halaa Engineering and Heavy Industry shipyard, which has gone into liquidation in wake of the currency crisis.

Confirming the orders, secretary, ministry of surface transport, Yogendra Narain said: This is the first of the series. Domestic yards will participate in all future tenders floated by SCI.

 

The order is for a 85000 dead weight tonnage (dwt) tanker at an approximate value of Rs 150 crore. The vessel is expected to be delivered in about two years. This is Cochin Shipyards second order from SCI. In 1996, SCI had placed an order for a crude oil tanker.

Hindustan Shipyard has also secured an order for two bulk carriers of 42750 dwt each from SCI. It has just completed delivery of two vessels of a similar configuration. SCI had placed orders with Halaa for two Aframax tankers of 110,000 dwt each after a tender process. However, the yard has since then gone into liquidation and conveyed its inability to meet the order.

As a result, SCI had to refloated the tender. Halaa would have normally delivered the ships in 1999 and 2000.

SCI has been opting to make new acquisitions from Korea because of the concessional dollar denominated loans of 10-year maturity offered by the Korean Exim Bank and the comparatively shorter delivery period.

However, Korean financial institutions are not in a position to offer such terms anymore as their cost of raising funds has increased substantially. Koreas sovereign paper is currently at about 350 basis point above the US treasury rate.

This has benefited domestic yards, who have burdened by a dearth of orders. Acquisition from domestic yards is subsidised. Loans are provided at a concessional rate of 7.75 per cent to domestic companies for acquiring vessels from domestic yards.

Acquiring vessels from the domestic yards has become essential for SCI, especially tankers, in view of the elimination of the cost plus formula,, which assures them a 12 per cent return on equity.

Purchase of vessels at low costs from domestic yards makes it possible for SCI to quote competitive rates for oil shipments and at the same time meet tonnage targets.