(Written by P. Manoj)
15 November 2011 - Great Eastern Shipping Co. Ltd, India’s biggest private ocean carrier, said it may consider selling more older ships on its fleet after second-quarter profit plunged 84% from a year earlier as excess supply of vessels crimped rents.
“We would be happy to sell older ships, where the cost of holding on to them is pretty high in terms of the higher cost to be incurred on maintenance,” G. Shivakumar, chief financial officer of Great Eastern, told analysts on Monday in a conference call. He, however, said that it was not a good time to sell younger ships because of depressed asset values.
Great Eastern’s net profit, including that at its units, fell to Rs.27.31 crore in the three months ended 30 September from Rs.168.65 crore a year earlier, the company said in a statement. Revenue rose 3.3% to Rs.678.76 crore.
“Freight rates have been affected by the over supply of ships rather than lack of demand,” said Nikhil Jain, an assistant research manager at Drewry Maritime Services Pvt. Ltd. “It’s going to take some time to get the balance right for demand and supply. We expect the rates to hover at this level for at least next six months.”
The company said profit was also hit by depreciation of the rupee against the dollar. The company, including its units, reported a foreign exchange loss of Rs.20.42 crore in the September quarter compared with a loss of Rs.4.6 crore in the year earlier.
Great Eastern currently owns a fleet of 35 ships including 25 tankers and 10 dry bulk carriers while its offshore oilfield services unit Greatship (India) Ltd owns 19 offshore assets.
The company sold seven vessels, including six tankers and one dry bulk carrier, in the year ended 31 March for dismantling. Since April this year, it has sold two more tankers for scrapping.
In addition, it has committed to sell the three oil supertankers it had ordered from South Korea’s Hyundai Heavy Industries Co. Ltd. The firm had to take an impairment hit of about Rs.85.70 crore in the last fiscal year as the agreed selling price was lower than the contracted purchase price.
Shivakumar said that a turnaround in the shipping industry would depend largely on dismantling of younger ships for scrap. “If the bad rates continue for another year or so, it will lead to a wholesale scrapping of sub-20-year-old oil tankers and bulk carriers. This will reduce the structural oversupply in the market and lead to a turnaround,” he said.
Last week, Greatship Global Offshore Services Pte Ltd, the Singapore unit of Greatship (India) Ltd, said it had cancelled the shipbuilding contract with Mazagon Dock Ltd for one of the two multipurpose support vessels used in offshore oil drilling operations after the state-run shipbuilder slipped on the delivery schedule. Mazagon Dock will refund the advance paid by Great Eastern for the construction of the ship. Great Eastern declined to disclose the amount it will get as a refund.
The two ships were ordered in 2007 and were slated for delivery in 2010. “We thought it was better to cancel the contract as we were not able to ascertain whether the ships would be delivered within a reasonable time-frame,” Shivakumar said, adding that Great Eastern was working with Mazagon Dock to get a fix on the delivery date for the second vessel.
“We expect a lot more stress in the shipping market in the coming months,” Shivakumar said.
On Monday, Great Eastern Shipping stock fell 2.6% to end trading at Rs.223 on the Bombay Stock Exchange, while the benchmark Sensex dropped 0.43%.