Essar Shipping converted R150 crore loans to cheaper dollar loans over the last five months of the R800-crore debt that it had planned to refinance, the company?s managing director, AR Ramakrishnan, said. The Ravi Ruia-promoted company has been able to refinance only 18% of its target as foreign lenders remained reluctant to gain exposure to the beleaguered shipping sector.
?It is not easy to refinance loans. European banks are cutting down their shipping portfolios. Also, in terms of lending, Indian banks have become cautious, and are lending only if shipping companies have long-term contracts,? Ramakrishnan said. The company?s debt stood at R5,500 crore as on December 31, 2012.
Indian companies have been trying to convert their loans into dollar loans as interest rates abroad are lower. The Essar Group companies, which include Essar Oil, Essar Steel and Essar Ports, have a combined debt of about R80,000 crore.
Added to the high-debt level, Essar Shipping is seeing low freight rates due to an oversupply of vessels in the market. Low rates and high costs of operations have led to many shippers in the US and Greece to go bankrupt. The Baltic dry index, the benchmark rate index for hauling commodities, has fallen 10% in the last one year. ?The industry will be weak this year too. The oversupply condition has not yet eased out,? Ramakrishnan said.
Currently, Essar Shipping has only its semi-submersible rig Essar Wildcat on a long-term contract that clocks in $285,000 a day. The rig, which is contracted with US exploration company ConocoPhillips, has completed about one and half years in the partnership. The company had two other long-term contracts, but both of them ended in September last year. The company?s very large crude carrier (VLCC) was under contract for two years and brought in revenue of $30,000 a day. The company?s other contract of its capesize clocked in revenue of $28,000 per day for five years.
?After the ending of the long-term contracts, both the vessels have now been put on the spot market,? Ramakrishnan said. The rates in the spot market are lower and volatile due to the over-supply condition that exists in the shipping industry. ?We are looking for one or two-year time charter for both the vessels,? he added.