Seven Islands Shipping eyes oil super-tanker segment

Seven Islands Shipping Ltd, founded by a former ship master, is betting on India’s voracious appetite for oil and the lack of adequate local tonnage to carry such cargo for state-run firms despite a preference given to Indian ships, to sell shares in an initial public offering (IPO) to fund an expansion plan.

“Indian flagged ships are not carrying the entire crude oil imported into India,” said Captain Thomas Wilfred Pinto, 58, the Chairman and Managing Director, adding that the firm has filed a draft prospectus with the market regulator SEBI in September.

Indian flag ships moved 13.9 per cent of the 202.9-million-tonnes (mt) of crude imported into India in FY-16, up from 11.5 per cent of the 189.44-mt in FY-15.

“India ships are running short. There is a lacuna in the system. Lot of foreign ships are carrying our cargo. If we keep quite, more will come in. We want to fill the gap and we found that oil super tanker is the right segment,” Pinto, who spent 20 years at sea and another four at Mercator Ltd, told BusinessLine in an interview.

India has only seven oil super tankers out of the 43 crude oil carriers.

Share sale Seven Islands – focussed on the oil tanker segment — plans to raise as much as ₹450 crore through the share sale, the first for an Indian shipping company in 20 years. The share sale is expected to test investor interest in a sector battered by the prolonged global slowdown since 2008.

Nearer home, the industry is witnessing a shake-out with the collapse of Prathiba Shipping Co Ltd and the imminent bankruptcy of Varun Resources Ltd, India’s biggest LPG fleet owner.

The share sale will be split into two – a fresh issue of shares worth ₹200 crore to fund the acquisition of a second-hand, so-called very large crude carrier (VLCC) or oil super tanker. A 15-year-old VLCC will cost less than $30 million in today’s market.

The IPO will also include a ₹250-crore offer for sale by existing shareholders comprising ₹125 crore apiece by promoters and investors.

Promoters currently hold a 73.6 per cent stake in the company. The US-based private equity firm Wayzata III Indian Ocean Ltd invested ₹75 crore for a 19.3 per cent stake in the company in June 2015 at ₹610 per share. The planned IPO will see the exit of the private equity firm, some two years earlier than the mutually agreed exit time-line for the investor.

Modest beginning Seven Islands, the country’s third biggest crude and product carrier by dead weight tonne (DWT) capacity, had a modest beginning in 2003.

Starting operations with a small ship of 7,000 tonnes, it has expanded to run a fleet of 12 ships comprising two small ships, seven medium range vessels, two Suezmax tankers and one VLCC of 300,000 tonnes. Since inception, it has been a profit-making company. In FY-17, it earned ₹381.39 crore with an EBITDA of ₹205.911 crore and net profit of ₹106.977 crore.

The company has a debt of about ₹100 crore with a debt-equity ratio of less than 1.

In ship charter tenders issued by State-owned oil firms, an Indian ship has the so-called right of first refusal to match the lowest rate quoted by a foreign-flag ship and take the contract, according to rules set by the Director General of Shipping, India’s maritime regulator, to support Indian flagged ships.

Moreover, State-run oil firms transporting oil products for local use along the Indian coast have to give preference to Indian flagged ships, according to India’s cabotage law.

“We intend to take advantage of the right of first refusal in crude oil and cabotage for oil products to acquire more vessels and increase our market share,” Pinto added.

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