ETMarkets.com"We are fully geared for the entire disinvestment process. There are no hang-ups and holdups from our side," says HK Joshi, CMD, Shipping Corporation of India.
A year ago it appeared that the world was collapsing, crude prices had fallen as the demand from China had plummeted. If I look at the basic indicators of demand and supply, which in a sense are captured by the Baltic Index, it looks like happy days are back?
Well yes the happy days seem to be coming back and the sun really seems to be shining up on us. After an estimated contraction of about 3.5% in the global GDP, it is forecast to increase by about 5.5% in 2021 according to the IMF. For me, the bright spot is India, which is supposed to be the fastest growing trillion dollar economy. While the bright spots are showing, we need to be cautious about the fact that the entire recovery process for economic growth is going to be contingent upon how the pandemic gets contained, what is going to be the rollout of the vaccination programme as well as what are going to be the economic policy choices of the countries going forward.
The Baltic Index is primarily driven by China and there is a concern that the global recovery is becoming unbalanced because of the growing current account surpluses in China which is estimated at around 1.5% of GDP. Against this, deficits in the US are at around 3.5% of the GDP. It may lead to trade tensions as was seen recently between the US and China. There is also a fear that the gap with the world’s poorest nations may increase and steps have to be taken to support the low income countries.
How prepared is SCI for a strategic sale? It is going to be a complicated process. How far has this process reached?
We are absolutely prepared and geared for the strategic sale and the disinvestment of the government’s 63.75% stake along with management control. We are already in the public domain and are hiring a consultant to help us with the demerger process. A certain part of the balance sheet is going to get demerged and our core assets will be up for disinvestment.
A preliminary information memorandum has already been issued and a response has already been received by the government for the core assets of the company. We are fully geared for the entire disinvestment process. There are no hang-ups and holdups from our side, whatsoever.
You already have appointed a merchant banker or in this case a valuer. When do you expect the total value of SCI divided into core shipping business and the non-core land and other businesses to be open to the public?
I will not be in a position to make a clear cut statement primarily because the disinvestment process is being driven by the Government of India, DIPAM in particular. The valuer that you are quoting in this context is as per protocol and they have been hired by DIPAM for the entire valuation process. The valuation is being driven by DIPAM and not by the management.
I understand that in shipping businesses, there are two types of rates -- open market rates and long-term contracts. Given the volatility in shipping rates in the last one year, how much of your long-term contracts have been renegotiated? As a percentage of your total contracts, how much is spot and how much is long term?
Considering that we are a listed company as well as considering the fact that we are being disinvested, I would not like to share any details which are not in the public domain. I hope all our investors and the viewers appreciate that fact but the fact remains that we very carefully balance the market risk. We do a proportion of business on spot basis, trying to capture the market upswings and we also have a mix of time charter to give stability to our businesses.
We have a very balanced basket of both time charter and voyage and that is very evident from the fact that last year in April-May 2020, when there was a completely unprecedented upswing in the freight market, SCI could capture that volatility and give value to its shareholders.
What is the growth potential going forward for the next three to five years?
From 2008 onwards, the industry has been depressed and that really has not reversed till now. After the pandemic, I expect there is going to be a lot of upsurge. There are going to be a lot of opportunities and this is the time for the industry to grow even though the symptoms right now do not appear to be conducive. Shipping Corporation of India is already in the market for tonnage acquisition. These are tenders which are already in the public domain and so I do not hesitate in sharing that we have already opened the technical bids and we are in the process of technical evaluation of the physical inspection of the vessels which we have bought and we have got a fairly good response to the tender for the tonnage acquisition.
So regardless of the disinvestment process, the company is going very strong with respect to its growth programmes going forward. Also, in the midst of the height of the pandemic, the company had gone in for a direct service to Maldives which was one of the first direct services. Just about a month back, we forayed into inland waterways and we considered that we were going to get the first-mover advantage in this sector even though this sector currently does not look to be very good. But this is going to be the future of India and through our inland and coastal shipping company, which is based out of Calcutta, we have already started a regular service on the national waterways. This is just to demonstrate the initiatives the management is taking for growth and diversification of the company.
Going forward, we would be looking at certain strategic restructuring as well. We have done something already and we are looking at doing something more and we are also seeing how we should be looking at the mix of our current connections. We are constantly working on that. Disinvestment or no disinvestment, for the management it makes no difference.
Are higher rates sustainable going forward? Your debt to equity ratio is incredibly low at this point. Is that sustainable at these levels?
There has been a continuous improvement in the debt-equity ratio over the recent years. I recall the extreme stress that I underwent when I joined the company in February 2015 when the DSCR levels were not being met by the company. Cash flows were quite erratic. But we have nursed the company back to good financial health and the fundamentals and the financials of the company are very strong. The company is currently not sufficiently leveraged and that gives us a distinct advantage in going in for more tonnage acquisition I was just talking to you about. We had to ensure that we were healthy enough to attract debt at the right prices and we have been doing that. The company has substantially refinanced its existing debt and that has made it even more healthy. The current debt-equity ratio should not be a cause of concern. It gives us the scope for further leveraging and for further tonnage acquisition which was the intent. So we are very much on track. This was by deliberate design and we are on track.
What is the definition of the non-core assets? We know you have parcels of surplus lands but what is the other non-core business or assets which could be divested if the strategic sale goes through?
I have a certain limitation even in this because the preliminary information memorandum which was put out by DIPAM has not listed the non-core assets and to the queries to the bidders, it was clearly stated that the details of the non-core assets will be made known to them in phase two of the bidding process. So, I cannot exactly list out what the non-core assets are. But I am very sure that the market is smart enough and everybody knows all the details.
Can you tell us how the debt equity split would move for the existing shareholders who are buying SCI stock today? Soon the company could be split and then what happens to the debt?
Logically, this is part of the second phase but I am sure every investor is very smart and I would like to assure all the investors and the viewers that the debt which currently sits on the balance sheet of the company is primarily for the tonnage. We don’t have any other type of debt. All the debt which is there is for the tonnage and for the ongoing operations. We have not acquired any non core asset out of the debt. That should be quite explicit and clear.
Historically, strategic stake sales or disinvestments have run into issues of labour, labour union and pension. How would you manage it because that is a tough one to crack?
I do not think we have too many IR issues in the company as of now. We are a substantially lean company and in terms of that, we have about 650-odd employees onshore and about 3,000 are fleet personnel.
I consider this is going to be a very smooth transition and I do not envisage much of a problem on that count except if the investor would want to make the company leaner. In that case, there could be issues with golden handshake which every investor will have to be prepared for.
Is there some government business which is coming via the nomination route? Could that change if the strategic sale goes through?
I would like to handle that question in two ways; one is that yes, nominations do happen but nominations never happen for anybody who is substandard. So the first part is that well if we are getting nominations, it is because of our ability to service those contracts. When the management control is going and the disinvestment is also taking place, in no way the capability or the capacity or the inherent skill sets are getting eroded. Investors have to have confidence in the capability of the company to be able to continue servicing whatever government contracts we currently have and we do not get these out of any concession. We are winning these contracts simply because we are the best in the industry. That is how confident I feel.
Shipping Corporation of India has always followed a liberal dividend policy. You have cash on your balance sheet. Before the disinvestment process, are some fat dividends coming?
Being a listed company, I cannot say anything on the dividend front until and unless the board has recommended it and it gets recommended in the AGM of the company. You know the rules which restrict me from saying anything but again I will say everybody is intelligent enough to understand what is going to happen.
A year ago it appeared that the world was collapsing, crude prices had fallen as the demand from China had plummeted. If I look at the basic indicators of demand and supply, which in a sense are captured by the Baltic Index, it looks like happy days are back?
Well yes the happy days seem to be coming back and the sun really seems to be shining up on us. After an estimated contraction of about 3.5% in the global GDP, it is forecast to increase by about 5.5% in 2021 according to the IMF. For me, the bright spot is India, which is supposed to be the fastest growing trillion dollar economy. While the bright spots are showing, we need to be cautious about the fact that the entire recovery process for economic growth is going to be contingent upon how the pandemic gets contained, what is going to be the rollout of the vaccination programme as well as what are going to be the economic policy choices of the countries going forward.
While we see an uptick taking place and a lot of fiscal and financial policy actions are also being taken. Government spending should help global recovery and in this context, US president Joe Biden is pushing for another $1.9 trillion stimulus for the economy. The US, which is the world’s biggest importer, is expected to recoup all the 2020 losses and the Euro region the UK and even Japan are not expected to reach their pre-Covid GDP levels until 2022.
The Baltic Index is primarily driven by China and there is a concern that the global recovery is becoming unbalanced because of the growing current account surpluses in China which is estimated at around 1.5% of GDP. Against this, deficits in the US are at around 3.5% of the GDP. It may lead to trade tensions as was seen recently between the US and China. There is also a fear that the gap with the world’s poorest nations may increase and steps have to be taken to support the low income countries.
How prepared is SCI for a strategic sale? It is going to be a complicated process. How far has this process reached?
We are absolutely prepared and geared for the strategic sale and the disinvestment of the government’s 63.75% stake along with management control. We are already in the public domain and are hiring a consultant to help us with the demerger process. A certain part of the balance sheet is going to get demerged and our core assets will be up for disinvestment.
A preliminary information memorandum has already been issued and a response has already been received by the government for the core assets of the company. We are fully geared for the entire disinvestment process. There are no hang-ups and holdups from our side, whatsoever.
You already have appointed a merchant banker or in this case a valuer. When do you expect the total value of SCI divided into core shipping business and the non-core land and other businesses to be open to the public?
I will not be in a position to make a clear cut statement primarily because the disinvestment process is being driven by the Government of India, DIPAM in particular. The valuer that you are quoting in this context is as per protocol and they have been hired by DIPAM for the entire valuation process. The valuation is being driven by DIPAM and not by the management.
I understand that in shipping businesses, there are two types of rates -- open market rates and long-term contracts. Given the volatility in shipping rates in the last one year, how much of your long-term contracts have been renegotiated? As a percentage of your total contracts, how much is spot and how much is long term?
Considering that we are a listed company as well as considering the fact that we are being disinvested, I would not like to share any details which are not in the public domain. I hope all our investors and the viewers appreciate that fact but the fact remains that we very carefully balance the market risk. We do a proportion of business on spot basis, trying to capture the market upswings and we also have a mix of time charter to give stability to our businesses.
We have a very balanced basket of both time charter and voyage and that is very evident from the fact that last year in April-May 2020, when there was a completely unprecedented upswing in the freight market, SCI could capture that volatility and give value to its shareholders.
What is the growth potential going forward for the next three to five years?
From 2008 onwards, the industry has been depressed and that really has not reversed till now. After the pandemic, I expect there is going to be a lot of upsurge. There are going to be a lot of opportunities and this is the time for the industry to grow even though the symptoms right now do not appear to be conducive. Shipping Corporation of India is already in the market for tonnage acquisition. These are tenders which are already in the public domain and so I do not hesitate in sharing that we have already opened the technical bids and we are in the process of technical evaluation of the physical inspection of the vessels which we have bought and we have got a fairly good response to the tender for the tonnage acquisition.
So regardless of the disinvestment process, the company is going very strong with respect to its growth programmes going forward. Also, in the midst of the height of the pandemic, the company had gone in for a direct service to Maldives which was one of the first direct services. Just about a month back, we forayed into inland waterways and we considered that we were going to get the first-mover advantage in this sector even though this sector currently does not look to be very good. But this is going to be the future of India and through our inland and coastal shipping company, which is based out of Calcutta, we have already started a regular service on the national waterways. This is just to demonstrate the initiatives the management is taking for growth and diversification of the company.
Going forward, we would be looking at certain strategic restructuring as well. We have done something already and we are looking at doing something more and we are also seeing how we should be looking at the mix of our current connections. We are constantly working on that. Disinvestment or no disinvestment, for the management it makes no difference.
Are higher rates sustainable going forward? Your debt to equity ratio is incredibly low at this point. Is that sustainable at these levels?
There has been a continuous improvement in the debt-equity ratio over the recent years. I recall the extreme stress that I underwent when I joined the company in February 2015 when the DSCR levels were not being met by the company. Cash flows were quite erratic. But we have nursed the company back to good financial health and the fundamentals and the financials of the company are very strong. The company is currently not sufficiently leveraged and that gives us a distinct advantage in going in for more tonnage acquisition I was just talking to you about. We had to ensure that we were healthy enough to attract debt at the right prices and we have been doing that. The company has substantially refinanced its existing debt and that has made it even more healthy. The current debt-equity ratio should not be a cause of concern. It gives us the scope for further leveraging and for further tonnage acquisition which was the intent. So we are very much on track. This was by deliberate design and we are on track.
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What is the definition of the non-core assets? We know you have parcels of surplus lands but what is the other non-core business or assets which could be divested if the strategic sale goes through?
I have a certain limitation even in this because the preliminary information memorandum which was put out by DIPAM has not listed the non-core assets and to the queries to the bidders, it was clearly stated that the details of the non-core assets will be made known to them in phase two of the bidding process. So, I cannot exactly list out what the non-core assets are. But I am very sure that the market is smart enough and everybody knows all the details.
Can you tell us how the debt equity split would move for the existing shareholders who are buying SCI stock today? Soon the company could be split and then what happens to the debt?
Logically, this is part of the second phase but I am sure every investor is very smart and I would like to assure all the investors and the viewers that the debt which currently sits on the balance sheet of the company is primarily for the tonnage. We don’t have any other type of debt. All the debt which is there is for the tonnage and for the ongoing operations. We have not acquired any non core asset out of the debt. That should be quite explicit and clear.
Historically, strategic stake sales or disinvestments have run into issues of labour, labour union and pension. How would you manage it because that is a tough one to crack?
I do not think we have too many IR issues in the company as of now. We are a substantially lean company and in terms of that, we have about 650-odd employees onshore and about 3,000 are fleet personnel.
I consider this is going to be a very smooth transition and I do not envisage much of a problem on that count except if the investor would want to make the company leaner. In that case, there could be issues with golden handshake which every investor will have to be prepared for.
Is there some government business which is coming via the nomination route? Could that change if the strategic sale goes through?
I would like to handle that question in two ways; one is that yes, nominations do happen but nominations never happen for anybody who is substandard. So the first part is that well if we are getting nominations, it is because of our ability to service those contracts. When the management control is going and the disinvestment is also taking place, in no way the capability or the capacity or the inherent skill sets are getting eroded. Investors have to have confidence in the capability of the company to be able to continue servicing whatever government contracts we currently have and we do not get these out of any concession. We are winning these contracts simply because we are the best in the industry. That is how confident I feel.
Shipping Corporation of India has always followed a liberal dividend policy. You have cash on your balance sheet. Before the disinvestment process, are some fat dividends coming?
Being a listed company, I cannot say anything on the dividend front until and unless the board has recommended it and it gets recommended in the AGM of the company. You know the rules which restrict me from saying anything but again I will say everybody is intelligent enough to understand what is going to happen.
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(What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)
...moreDownload The Economic Times News App to get Daily Market Updates & Live Business News.
Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.
Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price
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