The shipping ministry?s efforts to bail out Indian shipping firms, struggling to raise capital due to a dry run in the foreign credit market, has hit troubled waters. A working group of the Indian Banks Association (IBA) has suggested that the bank body has no role to play in the matter, effectively ruling out the possibility of any joint effort by banks to fund domestic shipping companies. IBA had constituted the working group to examine a proposal for extension of credit facilities to shipping companies in the country for purchase of vessels.

The Indian National Ship Owner?s Association (INSA) estimates that shipping companies in the country need close to $20 billion to fund their plans in the next 4-5 years to maintain their collective cargo carrying capacity at 13% of India?s exports.

Before the Budget was presented, shipping companies had sent a proposal to the finance ministry to set up a fund of $200million (Rs 10,000 crore) for soft-lending, as international funds had largely shrunk. According to shipping firms, a capital infusion was required to expand the country?s tonnage as shipping prices have plunged due to the economic downturn.

The finance ministry had requested the bank body to look into the issue, but the association said shipping companies should take up the matter with individual banks.

However, this may not be a practical idea, according to shippers. ?Taking loans from individual banks does not seem to be viable as the interest rates are too high. Attempts to get funds through a joint effort by banks do not seem to be a possibility either,? commented an official from the INSA.

Indian ship owners have always been dependent on the foreign banks for credit requirements, which have recently dried up. ?Before the economic downturn, we were getting credits from the foreign banks, which has now dried up. Indian shipping lines were always dependent on foreign banks mainly because of the lack of appetite of Indian banks to lend money, and also because of the rates of interest of the foreign banks being low. While the interest rates of the Indian banks are around 11-12%, with foreign banks we are paying rates below 4%,? said S Hajara, CMD, Shipping Corporation of India. ?The lending rates of Indian banks are currently too high to take it forward,? he added.

In another attempt, the shipping ministry has also sent a proposal to the finance ministry to explore the possibility of funding ship acquisition through the India Infrastructure Finance Company (IIFCL). However, the latter said acquisition of ships is basically purchase of capital equipment and does not qualify as infrastructure projects, which IIFCL currently funds.

Since the ways to get help from the government seems to be bleak, some of the shipping companies are looking at other avenues to fulfill their acquisition plans.

Great Eastern Shipping Company Ltd, the largest private shipping company in India, had raised Rs 250 crore through 10-year bonds, offering a coupon of 9.80% payable annually. The company said it will invest the money raised from the issue to fund acquisition of ships. Moreover, Mercator Lines, the country?s second largest private sector shipping company, said recently that its board has cleared a proposal to raise up to $40 million via equity or equity-linked instruments and another Rs 200 crore through issue of redeemable cumulative preference shares.

?As the situation is quite tough, Indian shipping companies might resort to these alternative means as help from the government does not seem to be forthcoming,? the INSA official added.