The Hindu Business Line : Korean Exim Bank to bankroll SCI purchase from Hyundai

THE total cost of two new very large crude carriers (VLCCs) of 3,00,000 dead weight tonnes (dwt) each currently being built at the ship yard of South Korea's Hyundai Heavy Industries for the state-owned Shipping Corporation of India (SCI) will be bankrolled to the extent of about $73 million by the Korean Exim Bank.

ANZ Investment Bank is arranging a dollar funding of $104 million through a composite deal to help finance the total acquisition cost of $130.40 million for the two crude carriers. Out of this $104 million, the Korean Exim Bank will provide a major share of $73 million, which works out to about 70 per cent of the total overseas loan being availed by SCI.

"This is how the Koreans do business. In India, we don't have any such system," a Government official said.

The interest rate for the loan will be about 70 basis points above the one-month Commercial Interest Reference Rate (CIRR) fixed by the Korean Exim Bank on the 15th of every month. This will translate into approximately 85-90 basis points above the six-month Libor rate.

ANZ Investment Bank had offered two options to SCI for determining the spread. One is to opt for a floating rate where the margin is certain basis points above the one-month CIRR. The second option was to go for a fixed rate of 4.87 per cent for the entire tenure of the 8-year loan.

In the second option, the Korean Exim Bank foresees the future movement of the dollar and fixes a rate which will be applied for the entire period of 8 years.

After evaluating the two options, the management of SCI has decided to adopt the floating rate whereby the interest rate for the loan will be fixed at 70 basis points above the one month CIRR that is prevailing at the time of availing the loan. ``While tapping the external commercial borrowings (ECB) market, it is always better to go in for a floating rate given the uncertainties associated with fluctuations in the exchange rate,'' the official said.

The dollar is weak and the rupee is getting stronger. The US dollar had depreciated to the extent of about 10 per cent in the last one year alone. ``At this rate, if it goes on reducing, it is better to go in for a floating rate,'' he said.

The proposal to opt for the floating rate for the overseas borrowings is expected to come up before the board of SCI when it meets on April 15 and 16.

SCI will pay interest on the loan once in six months and the loan would be repaid in half-yearly instalments over an eight-year period after the vessels are delivered.

The first of the two VLCCs will be delivered in February 2005 and the second one would be ready in October.

ANZ, the lead arranger, is likely to contribute about $10 million of the total loan while the remaining is expected to come from a couple of Singapore based banks. SCI has already paid about 40 per cent of the total contract price of the vessels to the shipyard.