The consortium of The Shipping Corporation of India (SCI) and Mitsui OSK Lines of Japan has won the much-awaited Petronet Liquefied Natural Gas (LNG transportation contract). The contract is estimated to be worth US$ 400 m. The other two companies in the SCI-Mitsui consortium include Kawasaki Shipping and NYK.
Petronet LNG, which proposes to have two terminals at Dahej and Kochi, would require four LNG vessels for moving 7.5 million metric tonnes of LNG annually. Three Indian shipping lines had already tied up with the foreign consortia for the LNG transportation for Petronet LNG. This includes Shipping Corporation of India (SCI) and Matsui-OSK of Japan, Great Eastern Shipping (GESCO) with SK Shipping of Korea and Varun shipping with Han Jin of Korea.
The transportation contract is expected to commence towards the later half of FY02. The company has already placed orders for a LNG vessel named ĎLaxmií, the 137,100 cubic million tonne LNG carrier, which would be delivered by FY02 (estimated cost US$ 189 m). Besides, the company has also placed orders for three Aframax carriers. To fund the fleet expansion plans, the company raised External Commercial Borrowings (ECB) of US$ 115 m (Rs 5,405 m) from the Royal Bank of Scotland and a three-bank consortium led by Bank of Nova Scotia.
With the Petronet contract SCI has entered into one of the most lucrative segments in the shipping industry. Since Indian shipping companies do not have adequate technical expertise in LNG transportation, the draft LNG policy states that the foreign partner should transfer his technical expertise to its Indian partner after five years. Therefore, after this stipulated period, Indian partner will manage these vessels. As LNG transportation contracts are typically for 25 years, one can expect SCIís cash flow to stabilise, which otherwise is vulnerable to international freight rates.
One of the key beneficiaries of this Petronet LNG contract will be the government. Since SCI is also in the disinvestment list, it will enable the government to fetch better value of the proposed 26% disinvestment in the company. But, given the present state of the government, it seems to be a tough ask.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407