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Amit Mitra

In India, Mercator would have had to pay tonnage tax or even corporate tax under the present tax regime.

Mumbai , Aug. 24

MERCATOR Lines Ltd (MLL) remains undeterred by the refusal of the Directorate General of Shipping to allow the company to take nine ships on long-term charter, with a buying option, from the Norwegian company, Klaveness.

What is more, it has already taken the nine Panamax vessels on charter through its subsidiary, Mercator Lines Panama, with the last joining its fleet on August 22. While some of the ships have been given on time charter, the rest are ferrying coal between foreign ports.

Now the company has launched another subsidiary in Singapore and the ships are being transferred to it for tax reasons. Mercator Lines Singapore will play a bigger role in the company's operations, with new acquisitions likely to be registered with it. Mr Salabh Mittal, Director of MLL, will head the Singapore operations.

Both the DG-S and some Indian ship owners were reluctant to allow MLL's charter-cum-buy deal with Klaveness. According to the memorandum of agreement signed by the two companies last month, MLL took nine geared vessels on long-term charter, at $11,500 per ship per day. MLL also made a lump-sum payment of $61.5 million.

With the Indian National Ship-owners Association (INSA) not reacting favourably to the deal, the DG-S remained undecided on MLL's request for approval. To avoid further delays, MLL chose the Singapore subsidiary route to execute the deal.

"Such charter deals with buying option may be new in India, but these are commonplace in the international shipping industry," Mr H.K. Mittal, MLL Chairman and Managing Director, told Business Line.

The deal makes significant economic sense for MLL. For one, the company now has on its hands nine ships, with a combined asset value of $400 million. Second, the daily charter rate of $11,500 for a duration ranging from 18 months to five years — when the existing rate is between $20,000 and $23,000 — would give the company a healthy margin.

The icing on the cake is the buying option. MLL can buy three of the vessels in October this year, February 2006 and in 2007 at rates that are about $10-15 million cheaper than the market price. The one-and-a-half-years- to five-year-old ships cost upward of $40 million each.

Moreover, MLL will operate under Singapore's tax-free regime . In India, MLL would have had to pay tonnage tax or even corporate tax under the present tax regime.

Mr Mittal is unworried by the fact that the chartered ships cannot carry government-controlled cargoes from India.

"Indian flagged ships carry hardly 15 per cent of Indian cargoes, the rest shipped by foreign flagged vessels. In any case, the chartered vessels can pick up any cargo from or two India vessels like any other foreign vessels," he said.

He has some major plans for the Singapore subsidiary.

"The three vessels we buy will be registered with this subsidiary. Some of our future acquisitions may also join the Singapore subsidiary fleet. And, in the long term, we may think of listing the subsidiary in Singapore, which is a major hub of international shipping operations," he said.

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