MUMBAI (Dow Jones)–The Shipping Corp. of India Ltd. (523598.BY) plans to raise up to $500 million in dollar loans from banks overseas in the financial year which starts April 1, a move that will increase the already heavy interest burden for the country’s biggest shipper by fleet size.
“We had ordered 45 ships according to the [government’s] five-year plan [through March 2012], out of which 35 have been funded for… We need to arrange funds for the rest,” B.K. Mandal, director of finance at the state-run shipper, told Dow Jones Newswires recently.
The Indian government sets budget aims linked to several development goals in five-year plans, during which it also decides on a specific number of vessels to be purchased by Shipping Corp.
Indian companies find overseas debt cheaper because a slew of monetary tightening measures back home by the country’s central bank have raised interest rates way beyond those available offshore.
This is true especially for shipping companies, whose operations are largely centered overseas, making offshore loans an attractive choice.
For instance, Shipping Corp.’s various expenditure segments–such as ship purchases and bunker fuel payments–are in dollars, but so is its biggest revenue chunk of payments from global traders.
However, Mandal said that foreign currency loans aren’t very easy to come by.
“The dollar is not really available now [because of the global liquidity crunch]… So interest rates have gone up,” said Mandal. “But we have to fund our capital expenditure, and overseas loans are much cheaper than Indian loans.”
Shipping Corp.’s debt was a total INR60 billion as at Dec. 31, almost 95% of which was dollar-denominated.
Because of the large dollar percentage, the rupee’s 16% slide against the greenback in 2011 led to a huge increase in the company’s interest costs, which surged more than fivefold on year to INR1.02 billion in the quarter through December.
But, with cash reserves of INR13 billion, the company is unlikely to have any problems making repayments, said Mandal.
Also, Shipping Corp. has no plans to refinance or roll over its current debt.
Mandal added that, because much of its operations are overseas, the company’s exposure to dollars is naturally hedged, and it doesn’t plan to take any covers.
But it will likely hedge bunker fuel prices–which rose 50% in the past one year—-next year to protect itself from the risk of further increases.
Shipping Corp. spent INR4.08 billion on bunker fuel for the quarter ended Dec. 31– up 93% from a year earlier–out of a total expenditure of INR11.87 billion.
–By Anirban Chowdhury, Dow Jones Newswires