A diversified fleet, expensive real estate in South Mumbai, huge workforce, a cash pile of some ₹1,300 crore and the security angle are some of the issues that confront the government as it weighs a plan to privatise Shipping Corporation of India (SCI) through the strategic disinvestment route.

Media reports suggesting that the SCI is a part of a list of PSUs recommended for strategic disinvestment by NITI Aayog has sparked talks within the shipping industry on the options before the government to carry out this task, as and when it is approved by the Cabinet.

Fully or in parts

While some say that it would make “logical sense” for the government to sell the company as a whole, with its entire fleet, some others say that it may have to look at selling the fleet in segments or in parts if the former exercise fails to find buyers.

“It’s not a straight-forward thing,” says an executive at the India office of one of the world’s top shipbroking firms. “It will be very logical to sell the whole fleet as one big unit than to try and sell it in parts,” he said, seeking anonymity.

With a diversified fleet of oil tankers, bulk carriers, offshore support vessels, container and passenger ships, SCI could face difficulties in finding buyers given the way the industry operates worldwide.

“Government enterprises, wherever they are, could potentially have various ship segments in the same way as SCI. However, private entities are structured differently,” he said.

For instance, one entity may have a fleet of ten very large crude carriers or oil super tankers but all of them could be owned and operated under separate special purpose companies because the owner doesn’t want the risks associated with one of them to have an effect on the other nine.

It makes sense, according to the broking executive, if there is a willing buyer to buy the whole fleet on an ‘as is’ basis. This would require an entity, with lot of money backing it, to buy a fleet of the magnitude of SCI. “I don’t know if there are very many people with such deep pockets to take over a national carrier such as SCI,” he said.

Yet, says a second executive with another ship-broking company based in London, that’s what makes logical sense. “For any company that has to be sold in toto of the scale of SCI, it would make sense to sell it lock, stock and barrel if you get a reasonable price. If you can’t, then you don’t have much choice but to sell it one by one or segment by segment or in groups. This also comes with a risk as there could be many ships left unsold, particularly in segments that are doing extremely bad over the past few years such as container ships and offshore support vessels,” he said.

“Then, what do you do with those ships. That’s the problem,” he said.

Besides, it would be easier to find buyers for younger, modern tonnage while older ships would not be attractive to anyone.

It’s not the diversified fleet, but the bloated workforce that could put off potential buyers, says an executive with a London-based shipping research firm. “There are too many people. It’s a very inefficient and unproductive organisation. That would be biggest issue for any buyer. It wouldn’t be easy to tinker with that given India’s tough labour laws,” he said, adding that the deal would be “value accretive” to a buyer only if SCI is privatised.

Bureaucratic hurdle

“The problem is that bureaucrats interfere too much in the management that it slows down decision-making. Even if SCI has to buy a second-hand ship, it has to float a tender. It’s a long, convoluted process SCI has to follow as a government company. In shipping, market changes every hour. You can’t afford to do that,” he said.

“Another issue to consider is whether SCI can make better use of its expensive real estate,” he added.

The building that houses the headquarters of SCI in South Mumbai is on a land estimated worth at least a few thousand crores.

Some experts say that the government may have to put “restrictions” such as allowing only local entities to bid from a national security point of view given the strategic nature of the industry.