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SCI’s buying spree can lead to a debt trap: Shipping ministry

The shipping ministry has raised alarm bells over the financial health of its flagship public sector undertaking,Shipping Corporation of India

Written by Gunjan Pradhan Sinha | New Delhi |
October 4, 2011 12:07:04 am

The shipping ministry has raised alarm bells over the financial health of its flagship public sector undertaking,Shipping Corporation of India,stating that its high-cost fleet acquisition plan is leading it into a debt trap akin to that of Air India.

The Rs 3,500 crore firm,which has ordered 28 vessels in three years has been able to achieve financial closure for just 10 vessels,while financing of the remaining ships is yet to commence. The concerns stem from the fact that the ministry has noticed a gap of over $200 million between the contract price and the present market value of ordered vessels.

Around 21 vessels have been ordered from Chinese shipyards. The company plans a capital expenditure of $3 billion for acquiring over 60 ships in the next few years. An email sent to the company on the cost of acquisition of the vessels currently on order remained unanswered.

The Centre is also concerned over the management’s reluctance to phase out the acquisition plan so that maximum orders are placed when prices bottom out. The company’s board members,have also tendered advice to this effect. According to some members,the management is also reluctant to look at acquisition of second-hand vessels. The company,however,maintains that it is looking at both options.

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In an agenda note circulated for a board meeting,the company’s management has acknowledged the failing financial health of the PSU. The note points out that the profitability of the company is likely to be strained especially during 2011-14 as per cash flow estimates. Financial ratios of the company may take a hit due to the need to service debts for its fleet acquisition without generating adequate cash flows due to the slump in the shipping market.

According to the projected cash flow statement for 2011-12 and 2015-16,there is likely to be a net cash out go of Rs 515 crore in 2011-12,Rs 432 crore in 2012-2013,Rs 510 crore in 2013-14 and Rs 194 crore in 2014-15. It is only in 2015-16 that the company may get a positive cash inflow of Rs 30 crore after discharging its dues on account of the acquisitions.

Responding to an email sent by The Indian Express,the company said that globally shipping is not doing well on account of low freight rates. “Even if the projected cash flow is stressed from operations in the near future,the accumulated reserves will sustain the company to sail through in 1-2 years when industry is not expected to do well,” it said.

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