The Hindu Business Line : Mercator withdraws application on charter deal with Klaveness

Authoritative sources told Business Line that Mercator Lines has withdrawn its application from the Directorate General of Shipping (DGS), seeking permission to take nine ships on long-term charter from Klaveness.

This comes in the wake of pressure from the Indian National Shipowners' Association (INSA) to withdraw the application.

Sources said even the DGS, which had been sitting on the application since July, had indicated to the company that it was "better for all" if the application was withdrawn.

Mercator Lines had been facing reluctance both from the DG-S and some Indian ship-owners to give permission to go ahead with the charter-cum-buy deal with Klaveness. As per the memorandum of agreement between Mercator Lines and Klaveness signed in July, the Indian company took nine geared vessels on long-term charter.

Mercator Lines will pay a daily charter rate of $11,500 per ship to the Norwegian company. It also paid a lumpsumof $61.5 million.

The charter deal spread ripples across the shipping industry. After receiving Mercator Lines' application, the DG-S had sought the views of INSA on the matter. INSA, however, had not taken to the charter deal warmly, as it felt the deal violated the existing charter norms and that it would set a precedent in the industry. Charter norms are generally stiff, as chartered vessels do not come in the Indian tonnage.

Sources said INSA had several rounds of discussion, with the body being "vertically split" on the issue. While some ship owners were either non-committal or tacitly in favour of the deal, the dominant section was against such deals. And ultimately, the views of this section prevailed and Mercator Lines was advised to withdraw its application.

However, Mercator Lines seems unfazed by the pressure it faced from the industry.

In fact, it took the nine Panamax vessels on charter through its newly-formed subsidiary, Mercator Lines Singapore, in August. While some of ships have been given on time charter, the rest are carrying coal between foreign ports. What is more, the company will transfer part of its new acquisitions to this subsidiary, which will be headed by Mr Salabh Mittal, Director of Mercator Lines.

When contacted, a senior Mercator official confirmed the withdrawal of the application. He, however, pointed out that "such charter deals with buying option may be new in India, but these are common in the international shipping industry."

The deal certainly makes significant economic sense for Mercator Lines. For one, the company now has in its hands nine ships, which have a combined asset value of $400 million. This it could achieve by just making the lumpsum payment of $61.5 million.

Secondly, it has contracted a daily charter rate of $11,500 with Klaveness for charter periods ranging from 18 months to five years, when the existing charter rate is between $20,000 and $23,000. When translated, it means a healthy margin for Mercator Lines.

The company has the option to buy three of these vessels in October this year, February 2006 and in 2007 at rates that are about $10-15 million cheaper than the market price of the vessels.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Withholding tax exemption — Withdrawal may push airlines into turbulence

Jet Airways for extending term of foreign pilots to 3 years — Plans flights to Brussels

Europe's waterways — Channels of smart commerce, fine life

Craning to accommodate Navy ...
Cochin terminal operator develops cricks

Shippers ride the US wave

Mercator withdraws application on charter deal with Klaveness

Premium postal products fetch Rs 43.13-cr revenue

Enhanced freight target: Can the Railways carry it off?