Shipping firms sail in rough seas November 12, 2008
Posted by dhirendra1972 in Earnings, Freight Rates, Global Commodities, Globat Trade, Goods Export, Profits, Shipping.Tags: Money, Rates, Shipping Lines
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Faced with declining freight rates and under utilisation of capacities, shipping firms are sailing in troubled waters.
While freight rates of goods exported from India to US and Europe have come down by more than 40% between July and November, capacity utilisation of the ships has slipped below 60%.
The leading shipping lines operating between India and Europe and the US say that the freight rates have dropped to $700 from $1,000 and $1,600 from $1,900, respectively, for every 20-foot equivalent unit (TEU).
Erosion in earnings and operating profit margins are also taking toll on the stock prices of the shipping companies, with their scrips losing between 15% to 37% between June and October. Varun Shipping has fallen 15%, while GE Shipping has slumped 20% and Shipping Corporation of India (SCI) 30%. Essar Shipping has been the biggest loser, slipping about 36%.
The freight rate has fallen primarily due to global slowdown, which has impacted demand. V Kumar, MD, Bharti Shipyards Ltd said reduction in world trade has affected freight rates.
Rajeev Gupta, joint secretary in the ministry of shipping, road transport and highways says, freight rates are also tumbling because of the general correction in global commodity prices.
Kumar adds that shipbuilders have been working on capacity expansions over the last 18 months to encash the boom in global trade.
So a large number of new ships are expected to hit the maritime traffic lanes in 2009. But if demand doesn’t pick up soon, the shipping lines will not be able to recover their costs.
Anil Devli, executive director with Shreyas Shipping and Logistics, says that there are a lot of uncertainties regarding where the global trade and commerce is heading. The rates will stabilise once some clarity emerges.
Most of the companies, however, say the fall is temporary and freight rates will bounce back soon. State-owned SCI is in a slightly advantageous position as it is diversified in tanker, container and offshore businesses. However, most of the companies expect the dry bulk rates to remain low for three to six months.
India Inc needs $10bn for debt re-financing November 10, 2008
Posted by dhirendra1972 in Credit Market, Earnings, Investment, Net Profit, Re-financing, Repayment Time, Savings, Working Capital.Tags: Capital, Debt, Loan, Profit, Sector
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Good evening friends. Many needed to repay their debts. Small and medium industries. This is in reference to The Times of India which I want to share it with you.
Questions have time and again been raised about the balance sheet strength of India Inc. An analysis shows that around half of sensex companies would need re-financing in the immediate term. Re-financing would essentially replace existing debt obligation with a debt obligation bearing different and possibly, easier terms. Sensex constituents alone would account for nearly 80% of the Rs 50,000 crore ($10 billion) required by major Indian firms to re-finance debt over 18 months.
A pronounced decline in earnings of certain companies could lead to a situation where net profits may not be adequate to cover interest costs, flagging off debt re-financing requirements. Delays / deferment of projects under implementation, and working capital constraints could, as a result, kick in.
The list of companies which have higher re-finance requirement is topped by Hindalco Industries (Rs 15,400 crore), Reliance Industries (Rs 6,200 crore), Tata Steel (Rs 5,500 crore), Bharti Airtel (Rs 2,000 crore) and Reliance Communications (Rs 1,900 crore), data from J P Morgan shows. In all, there are around 13 Semsex companies with substantial re-financing needs.
“Given the turmoil in the credit markets, we believe it is also necessary to look at refinancing / rollover risks over the immediate term. At the systemic level, debt to be re-financed over the next 18 months appears manageable at 13% of total borrowings. Sectors that appear to have relatively higher risk on this variable are materials, consumer discretionary and real estate,” Bharat Iyer, analyst with J P Morgan India said.
Refinancing is usually undertaken to reduce interest costs, extend the repayment time, pay off other debts or to raise cash for investment. “Companies only consider refinancing, if the potential for a substantial cost savings exists, or if there is a need to extend the loan due to weak cash flow or other non-recurring commitments.
Therefore, calculating the up-front, ongoing, and potentially variable costs of refinancing is an important part of the decision on whether or not to refinance,” said a senior investment banker. Debt for sectors such as real estate should be more closely looked at as many of them often collateralize loans by the stock of the development company, rather than the developed property, she added.
Companies from materials, energy, industrials, telecommunication services and real estate will go for debt-refinancing by May-June 2010. The risk profile of debt in the case of the materials sector is also higher as it has largely been utilized to finance overseas acquisitions (Hindalco).
