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Essar Shipping to exit offshore vessel business

Shyam G. Menon

MUMBAI, July 1

THE Rs 472-crore Essar Shipping Ltd (ESL) plans to exit its offshore vessel (OSV) business.

ESL has identified energy transportation and coastal shipping as its preferred areas of operation.

Its three 1984 built-OSVs totalling 5253 dwt and contributing just about 2.5 per cent of turnover, are not seen as fitting into ESL's business strategy which further seeks growth through a containable fleet composed of big sized-vessels.

``We would like to sell our OSVs,'' Mr Rajiv Agarwal, Executive Director, ESL, said. The process might take some time as currently the market price for OSVs is not very attractive.

He said that Essar's OSVs are among the best to be had from OSVs of ``old vintage.''

Group company Essar Oil, in which ESL has an equity stake, is already in the process of selling its oil drilling business.

Mr Agarwal, who said ESL as an equity participant in Essar Oil was aware of the sale decision, pointed out that the Essar group - while wanting to be in the business of oil refining - felt that support services such as OSVs and drilling rigs could be out sourced.

It therefore made no sense for ESL to be interested in Essar Oil's proposal to sell its rigs. Besides, they are land rigs while ESL is a ship-operating company.

In 2001-2002, ESL is expected to have a capital expenditure of approximately Rs 200 crore. This includes Rs 100 crore, intended as equity contribution to complete the Rs 500-crore equity base of ESL's wholly-owned subsidiary implementing the Rs 1,800-cro re Vadinar port and terminal project.

``We can easily dilute our equity in the subsidiary by up to 40-50 per cent. That would still leave control with us,'' he said of ESL's plan to rope in a professional port operator for the Vadinar project. The facility is targeted for completion in 18 mo nths' time.

The balance Rs 100 crore from the capital expenditure estimate is hoped to service the year's fleet augmentation needs. ESL is seeking one more capesize bulk vessel as also more Suezmax tankers and a very large crude carrier (VLCC) for its energy transpo rtation division.

Besides the projected capital expenditure, Mr Agarwal said that the company intended to refinance its entire debt of about Rs 500 crore in the ongoing fiscal.

He attributed ESL's improved profits of 2000-2001 (the company's net profit shot up from Rs 48.44 crore to Rs 100.27 crore), to better earnings in the tanker business, reduced financial costs (lower lease rentals) and fall in operating costs.

Mr Agarwal pointed out that ESL's 2000-2001 net profit could not be seen fully in the context of recently bouyant tanker rates because most of its tankers were on time charter. Only one tanker enjoyed spot rates for a whole year while another benefitted for about six months.

But the time charters, entered into at right junctures, maintained good earnings.

One more ship is now scheduled to come free from its long-term charter commitment. Mr Agarwal said that notwithstanding some weakening of late in the tanker market, the outlook was positive. Therefore, all the three tankers which are off time charter, wi ll sail on spot basis for some more time.

He did not fully agree with the view that low dry bulk rates called for reviewing presence in that segment. ESL is the only Indian company deploying capesize (over 100,000 dwt) dry bulk ships.

Mr Agarwal said that if initial investments were well calculated and costs contained, the emergent earnings in dry bulk could be attractive.