Shipping Corporation of India (SCI), India?s largest public sector shipping company that recently hit the market with a follow on public offer (FPO), is on a vessel acquisition spree. The company currently owns a fleet of 77 vessels of 5.37 million dead weight tonnage (DWT), with approximately is a 35% share of Indian flagged tonnage. In an interaction with FE?s Nikita Upadhyay, S Hajara, CMD, SCI spoke on the company?s vessel acqusition plans, charter rates and how the year has been for the shipping sector.

Has your vessel acquisition plan been on track? Isn?t the tendering process causing delays?

Our vessel acquisition plan is on track. No, we have not been facing any delay due to the tendering process. Currently, we have 30 vessels on order, which are expected to be delivered between the year ended 2010 and 2013. The net proceeds of the issue will be used as an equity component towards three vessel acquisition projects. This is the right time to buy ships as asset prices have bottomed out. We have a diverse fleet of dry bulk carriers, very large crude carrier (VLCC) tankers, crude oil tankers, product tankers, container vessels, passenger-cum-cargo vessels, chemical carriers, LPG and ammonia carriers, and offshore supply vessels.

When the industry is in oversupply, how is SCI adding more tonnage a good decision?

Since prices of new assets have fallen substantially over the past two years, SCI is likely to benefit, given its huge fleet addition plans. Currently, the average age of our fleet is 15.5 years. The phasing out of older vessels and new additions will bring down the average age of the fleet to about 11 years, thereby reducing our operating costs. Moreover, charter rates are relatively healthy for new vessels, which would improve realisations, going forward.

Shares were priced at Rs 140 per share during the FPO. However, they are now trading at Rs 133 (as on Friday?s close). Was the issue overpriced?

The issue was subscribed about five times. This is purely a share market trading cycle. We, as a company, cannot control the share price fluctuation, neither can we predict how it will behave in future.

Are you looking at any other joint venture opportunities? When can we expect a development on the joint venture with Coal India?

SCI as a company has been very actively involved in the JV businesses. The company has entered into six strategic joint ventures which will provide various advantages and access to markets which would have otherwise not enjoyed. Through these joint ventures, the company has strengthened its ties with joint venture partners, some of whom are also their charterers. These joint ventures add value to the business. Talks are on and we will communicate once a development happens on that front.

What is the progress on picking up a stake in a shipyard?

We have been evaluating the tenders and the talks are on. But a decision on the same is still far fetched because the talks are in a nascent stage.

How has been this year for the entire shipping sector?

The shipping industry has been going through tough times. Chartering rates have come down substantially. Despite a revival after a severe collapse in 2008, freight rates for most asset classes continued to remain weak due to a vessel over-supply situation. Ship owners have responded to the situation by resorting to slow steaming of vessels, thereby reducing the active fleet availability and operating costs due to savings of fuel.

Further, the industry has witnessed high rate of slippages and cancellations, which could help ease the over-supply situation. In my view, charter rates will see no respite before the end of 2011 or start of the year 2012.