In Dry Bulk Market,International Shipping News 25/01/2016
Mercator’s tryst with Singapore goes on to show that it is not tax-friendly jurisdictions that ultimately decide the success or failure of a shipping company. The shipping market will always have the last word on that. A firm that can manage the market volatilities well will survive than those who cannot.
Indian shipping and logistics company Mercator Ltd has decided to sell its Singapore-listed dry bulk shipping unit Mercator Lines (Singapore) Ltd, becoming the first Indian casualty of the free-fall in the dry bulk freight market.
The board of directors of Mercator Ltd took the decision on 18 January after creditors piled pressure on the company to recover dues, with one of them even filing an application with the high court of Singapore seeking to place the ship-owner under the management of a court-appointed company.
The going has been tough for Mercator’s Singapore unit, the only Indian-owned shipping company to be listed in the city-state.
The falling commodity prices, an oversupply of new bulk carriers and weakening international demand have hit global trade and pressured dry bulk freight rates lower, hurting the company’s ability to run its ships profitably.
The firm has posted three continuous years of losses—Rs.424 crore in fiscal 2013, Rs.140 crore in 2014 and Rs.768 crore in 2015—and was put on a watch list by the Singapore stock exchange.
During the first six months of fiscal 2016, the firm led by Shalabh Mittal posted a loss after tax of Rs.136 crore.
It has debt of about Rs.1,000 crore.
The continuous poor run of the Singapore unit was becoming a drag on the parent company’s consolidated performance.
In December 2015, the company sold three mortgaged bulk carriers to service its recurring debt. It entered into agreements to sell the three ships to related companies of their lender on an arms-length basis at market value for total net proceeds of $14.8 million.
Globally, the dry bulk freight market has been the worst affected by the downturn in the shipping cycle, with the Baltic Dry Index, or BDI, having collapsed from a level of 11,793 points in 2008 to an all-time low of 373 points on 15 January, and not showing any signs of an early rebound.
London-based BDI tracks rates to ship dry bulk commodities such as coal, iron ore, foodgrains and fertilizer.
In 2005, Mercator spun off its dry bulk shipping business into a separate company and listed it on the Singapore stock exchange. Many global fleet owners have set up shop in Singapore because of the investor-friendly policies of the city-state.
Mercator opened the subsidiary in Singapore after India’s maritime regulator—the Directorate General of Shipping—refused it permission in 2005 to charter (hire) 11 geared panamax carriers (called so because they can sail through the Panama Canal fully loaded) of about 73,000 tonnes from Norwegian shipping firm Klaveness A/S for as long as five years. Geared ships do not require help from on-shore cranes to load and unload cargo. Local laws then allowed a fleet owner to hire non-Indian registered ships for only a year.
Apart from the worsening dry bulk market, Mercator’s Singapore unit was also done in by the high prices it paid for buying ships during the boom period prior to 2008.
The value of at least a couple of these ships, purchased at about $60 million each, tanked to less than $20 million each within a few months of their purchase.
Ship rentals that were below break-even levels further added to the woes.
It also hired 2-3 ships for long tenures at high rates but the earnings from them were less than what it had to pay the shipowner and were returned. All these caused a setback to the company from which it never recovered. Mercator would have been better off had it exercised caution on these deals, perhaps indicating that the top management lost its way while navigating the company through a turbulent period.
While the dry bulk market crashed, the Indian parent withstood the after-shocks well largely because of its decision a few years ago to de-risk itself by diversifying its portfolio to include coal mining and logistics, oil and gas exploration and dredging, the last one being a niche area with vast scope for local dredging contractors due to government policies that favour local firms.
Mercator can always look at re-entering the dry bulk shipping sector if and when the Indian government agrees to a demand from local fleet owners for directing state-owned firms to reserve some portion of their annual cargo hauled by sea for Indian-registered ships. This will assure cargo support for Indian ships during these tumultuous times in shipping.
Source: Livemint
