Bengaluru, Mar 27: The debt ridden domestic
ship building industry, especially in the private sector, is facing severe
order crunch.
The cancellation of orders of unfinished ships is looking
towards the Defence and Coast Guard orders for their revival.
The industry which is in downward trend since 2011 following decline in freight rates and fall in ship prices are facing keen competition from Korean and China ship builders who were offering ships at much lower costs due to cheap labour and material costs besides competitive finance availability.
According to credit rating agency ICRA, the credit profile of most of the private shipyards has deteriorated in recent years as the rising debt levels coupled with lower profits have resulted in weak financial leverage and debt coverage metrics.
Two large private shipbuilders-- ABG Shipyard Limited and Bharti Defence and Infrastructure Limited, have already been referred to the National Company Law Tribunal (NCLT) with a cumulative debt burden of Rs 25,000 crore. The private shipyards are now focusing on orders from the Indian Navy and the Indian Coast Guard and are accordingly acquiring and enhancing their Defence shipbuilding capabilities with the aim to turnaround their ailing financial health.
Mr K Ravichandran, Senior Vice-President & Group Head, Corporate Ratings, ICRA, said in a release on Tuesday that “Defence shipbuilding in India is emerging as an area of focus for public and private sector shipyards alike. While the public sector shipyards are the front-runners in the Defence shipbuilding space, an increasing number of private shipyards are undertaking specific measures to enhance competence and modify their existing shipbuilding repair facilities to suit the needs of the Indian Navy. Some of the leading private shipyards, which entered the shipbuilding market as commercial shipbuilders, have been repositioning themselves as companies with Defence shipbuilding capabilities.
With the revised Defence Procurement Procedure-2016 launched in March 2016, the Defence sector is working towards achieving higher indigenisation in both the design and the construction of Defence equipment.”
The Government of India has undertaken multiple initiatives to encourage indigenous design and construction of warships and to strengthen the financial support and incentives provided to the shipyards. ICRA expects the shipbuilding industry to witness greater consolidation and collaboration between the private and public sector to enhance its capabilities on the technological and operational front. The Sagarmala programme which aimed to modernise the country’s ports and increase transportation of cargo and passengers through inland waterways will benefit the domestic shipbuilding industry. The programme entails development of six new ports and new waterways which will create the requirement for dredgers and harbour crafts. There would be greater oil exploration activity in deep-water leading to greater demand for offshore rigs and vessels. Further, there would be increase in demand for ships and ports to handle liquid and gas cargoes. With the emphasis on Make in India, this initiative would also look at job creation in the shipbuilding sector.
On the Government of India initiatives, Ms. Anubha Rustagi, Senior Analyst, ICRA, added: “Over the last two years, the government has taken various steps to support the domestic shipbuilding sector. These include granting of infrastructure status to stand-alone shipyards thereby allowing them to seek flexible structuring of the project loans; renewing the financial subsidy granted to the Indian shipyards under a Rs. 4,000 crore program that will run until 2026; granting the right of first refusal to the Indian shipyards for newbuilds and ship repairs in the bulk-tendering process. The impact of these measures is expected to gradually improve the sector’s financial performance. ICRA notes that over the last couple of years, the GoI has brought the private sector onboard to ensure availability of sufficient capacity to execute its ongoing and upcoming defence shipbuilding plans though timely tendering and awarding of orders along with required budgetary allocations to the Indian Navy would remain important.” UNI
The industry which is in downward trend since 2011 following decline in freight rates and fall in ship prices are facing keen competition from Korean and China ship builders who were offering ships at much lower costs due to cheap labour and material costs besides competitive finance availability.
According to credit rating agency ICRA, the credit profile of most of the private shipyards has deteriorated in recent years as the rising debt levels coupled with lower profits have resulted in weak financial leverage and debt coverage metrics.
Two large private shipbuilders-- ABG Shipyard Limited and Bharti Defence and Infrastructure Limited, have already been referred to the National Company Law Tribunal (NCLT) with a cumulative debt burden of Rs 25,000 crore. The private shipyards are now focusing on orders from the Indian Navy and the Indian Coast Guard and are accordingly acquiring and enhancing their Defence shipbuilding capabilities with the aim to turnaround their ailing financial health.
Mr K Ravichandran, Senior Vice-President & Group Head, Corporate Ratings, ICRA, said in a release on Tuesday that “Defence shipbuilding in India is emerging as an area of focus for public and private sector shipyards alike. While the public sector shipyards are the front-runners in the Defence shipbuilding space, an increasing number of private shipyards are undertaking specific measures to enhance competence and modify their existing shipbuilding repair facilities to suit the needs of the Indian Navy. Some of the leading private shipyards, which entered the shipbuilding market as commercial shipbuilders, have been repositioning themselves as companies with Defence shipbuilding capabilities.
With the revised Defence Procurement Procedure-2016 launched in March 2016, the Defence sector is working towards achieving higher indigenisation in both the design and the construction of Defence equipment.”
The Government of India has undertaken multiple initiatives to encourage indigenous design and construction of warships and to strengthen the financial support and incentives provided to the shipyards. ICRA expects the shipbuilding industry to witness greater consolidation and collaboration between the private and public sector to enhance its capabilities on the technological and operational front. The Sagarmala programme which aimed to modernise the country’s ports and increase transportation of cargo and passengers through inland waterways will benefit the domestic shipbuilding industry. The programme entails development of six new ports and new waterways which will create the requirement for dredgers and harbour crafts. There would be greater oil exploration activity in deep-water leading to greater demand for offshore rigs and vessels. Further, there would be increase in demand for ships and ports to handle liquid and gas cargoes. With the emphasis on Make in India, this initiative would also look at job creation in the shipbuilding sector.
On the Government of India initiatives, Ms. Anubha Rustagi, Senior Analyst, ICRA, added: “Over the last two years, the government has taken various steps to support the domestic shipbuilding sector. These include granting of infrastructure status to stand-alone shipyards thereby allowing them to seek flexible structuring of the project loans; renewing the financial subsidy granted to the Indian shipyards under a Rs. 4,000 crore program that will run until 2026; granting the right of first refusal to the Indian shipyards for newbuilds and ship repairs in the bulk-tendering process. The impact of these measures is expected to gradually improve the sector’s financial performance. ICRA notes that over the last couple of years, the GoI has brought the private sector onboard to ensure availability of sufficient capacity to execute its ongoing and upcoming defence shipbuilding plans though timely tendering and awarding of orders along with required budgetary allocations to the Indian Navy would remain important.” UNI
