The Great Eastern Shipping Co Ltd, India’s biggest private ocean carrier, prefers to buy more of the assets that have a much greater volatility stomach, said Deputy Chairman and Managing Director, Bharat Sheth, shedding the typical cautious approach adopted by fleet owners while buying ships in a highly volatile industry.

Sheth draws his strength to play the volatility game from the ₹4,000 crore of cash the firm is sitting on, which will help leverage the balance sheet to buy assets.

“If we are getting better at playing volatility and, I hope, we will eventually get much better than we have been in the past, we will prefer to buy more of the assets that have a much greater volatility stomach,” he said. “We would be looking at buying very large crude carriers; it is the most volatile of all asset classes in the tanker segment and, if we see the right opportunity, absolutely we will get into that bet,” he stated. At present, Great Eastern, doesn’t have a VLCC on its fleet of 46 ships.

On the day-to-day volatility, having the right ship at the right time is important, but what you also need is having multiple asset classes in the same category of assets, so then you can spread around; while everything may not benefit, maybe you’ll capture an X percentage of that benefit, he said.

The Great Eastern is very agnostic to which sector to invest.

“We will focus on the four sectors where we have build-up significant skill sets – crude oil, petroleum products, liquefied petroleum gas and dry bulk. We are not at this stage thinking of going into a fifth because we really want to be the best in the world in these four sectors,” Sheth explained.

“Butwithin these sectors, we are agnostic. Having said that, we would never place a 100:0 bet on any one of these four sectors, even though we believe that we are improving on the way we handle the volatility. We have kept internal caps that however bullish we are on a particular sector, we will not have more than X hundred million dollars exposed to that particular sector,” he asserted.

Cheaper price points

While ship values have come down by about 7 per cent on an average in the first quarter of FY 21, the firm would wait for cheaper price points before writing a cheque to buy assets.

“Events like this pandemic can happen again, and we haven’t even overcome the current pandemic. We just want to be positioned whereby if we buy the assets that’s got to be so cheap that we can ride very comfortably through these kind of Black Swan events, and until we get to those price points we are happy to sit on the cash,” he said.

This approach comes from a desire not to repeat “mistakes” on capital allocation.

“What we don’t wish to do is build up the cash and then misallocate it in terms of capital,” he said.

“The more cash we build up, we will put it in good use and what do I define as good use, whenever we invest in ships, we should be in a position to generate, hell or high water, somewhere between 12 to 15 per cent dollar returns on unlevered capital (without the effect of debt).

Great Eastern would be happy to buy ships in blocks from good stables, something it has done earlier, but was averse to buying companies.

“The reason is there is always a challenge on cultural fit. We want to preserve our culture to the best we can,” he added.

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