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SCI disinvestment -- Govt. `shipping' out of SCI

N. K. Kurup

IF RECENT reports are anything to go by, some of the leading global shipping lines will bid for the Shipping Corporation of India (SCI), one of the PSUs figuring in the latest disinvestment list.

However, it is unclear how the Government plans to sell its SCI stake. There is an element of uncertainty over the disinvestment in general, with two ministers from Maharashtra _ Manohar Joshi and Ram Naik _ airing views against the privatisation of prof it-making PSUs. Ministry officials privately admit a possible delay in the process. Yet, a look at the issues concerning the sale of the SCI may be in order.

Earlier reports indicated the Government's intention to go in for a strategic sale of 74 per cent. Indian companies are unlikely to bid as they are smaller than SCI. A public offer is also unlikely as the market perception of the company is poor _ its sh ares have been quoted at Rs 14 in the past few months. In all probability, the Government will go in for an international strategic partner for SCI.

Given the SCI's present organisational structure, the Government may find it difficult to get a single strategic partner who will offer a realistic price for the 74 per cent stake.

The SCI is a profit-making company with a diversified fleet of over 115 ships. Its international image is good as the company enjoyed a virtual monopoly in domestic oil cargo for many years. SCI transports about 60 per cent of the domestic POL cargo.

The company operates almost all types of vessels _ oil tankers, LPG and chemical carriers, container vessels, bulkers, OSVs, multi-support vessels, coastal ships and passenger carriers. Nearly 60 per cent of revenue comes from tanker operations. It is al so entering the LNG transportation business jointly with international players in the field _ a move crucial for SCI's long-term growth. Very few international companies own such a diversified fleet.

However, these fundamentals are not reflected in the market perception of SCI. Why?

Consider a top SCI official's view. While SCI's intrinsic value is estimated at Rs 120 per share, it is currently traded at Rs 14, a steep discount of 79 per cent to its book value of Rs 68 per share. In fact, most shipping shares are being traded at a d iscount as the industry is in a sluggish phase.

Unlike the new economy sectors, in shipping, return on investment is normally 6-7 per cent, purely from operations. The companies make money from `asset playing' (buying and selling ships). Being a public sector company, `asset playing' is not part of it s commercial strategy. SCI normally sells aged vessels for scrapping. That apart, being a Government-owned company, SCI is forced to continue some services, even though they make losses.

The current market perception of the shipping industry is not promising. With the freight market showing no sign of improvement, it is unlikely to change in the near future. Though SCI's fundamentals are better, the market perception of the company is no t different from that of the shipping sector.

Therefore an exercise to realise the SCI's real potential is required. It is in this direction that the ministry is considering a proposal to hive off some of the divisions into separate entities.

However, before spinning off the divisions, the Government should specify its goals. Is it looking to sell the assets at the best price? Or does it want to improve the SCI's services with the help of a partner who can inject the funds to run it more effi ciently?

The answers to these are important. SCI has been crucial in serving not only the interests of domestic trade, but also the Government's strategic needs and social commitments. A private international partner will insist on running the SCI on a purely com mercial basis, earning the highest possible returns on investment.

SCI's privatisation is unlikely to hurt domestic trade. In the liner trade, SCI's home market share is only 11 per cent. The petroleum sector, where SCI is a major player, has already been thrown open to foreign competition, with the private sector refin eries making their own shipping arrangements.

The Government may have to forego some of its social commitments currently fulfilled by the SCI _ training sailors, creating employment for them, subsidised passenger services to pilgrims and the poor. And lastly, its service to the Indian bureaucracy!