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P. Manoj

NEW DELHI, June 14

THE stage is set for Shipping Corporation of India (SCI) to take a final view on whether to continue or quit its association with the troubled joint venture Greenfield Shipping Company, the first foray by an Indian line into LNG shipping.

"The board of SCI is meeting next week to discuss, among other issues, the future of its association with Greenfield in which the company holds a 20 per cent stake worth $11 million'', sources aware of the developments said.

The move comes after the board of SCI, on the recommendations of a sub-committee report, had earlier decided against investing a further $33 million as its share of a bridge loan in Greenfield to retire the original senior loan of $110 million taken from a consortium of banks led by ANZ Investment Bank.

The bridge loan was to be given by all the three joint venture partners in proportion to their equity holdings at 80 basis points above Libor.

Greenfield was formed for owning and operating a 1,37,000-cubic metre capacity LNG tanker for the now controversial Dabhol Power Company (DPC).

With SCI refusing to pump its portion of the bridge loan, the other joint venture partners had initially proposed to raise a third party loan to meet SCI's share of $33 million, which was later shelved.

Instead, the Government of the Sultanate of Oman invested $66 million as its share of the loan for holding 40 per cent stake in Greenfield while Japan's Mitsui O.S.K. Lines chipped in with $99 million, comprising its share of $66 million as a 40 per cent stakeholder as well as $33 million towards SCI's share.

After discharging the senior loan of ANZ Investment Bank, Mitsui has been exerting pressure on SCI to pay the share of $33 million which was contributed by the Japanese line on its behalf.

The issue has already led to a vertical split in the SCI board with one group arguing for the continuance of SCI in Greenfield and the other group favouring an exit from the joint venture by selling its 20 per cent stake.

The first group is of the view that the problems facing LNG Laxmi would be over the moment it is deployed on a long-term charter basis with Oman LNG by the new charterer, the Government of the Sultanate of Oman, in December. Hence, it was worthwhile to invest further funds in Greenfield with the hope of recovering a fair return on equity, this group has opined.

But, the second group is staunchly opposed to this move. With the Government putting all major commercial investment decisions of SCI on hold till the on-going privatisation exercise is over, this group feels that the issue of further investments by SCI in Greenfield should be decided by the new private strategic partner.

Besides, Dabhol is not expected to come up in the forseeable future. Moreover, the outlook for LNG market in India is uncertain, this group has contended.

In the absence of a long-term time charter for LNG Laxmi and the fall in the charter hire rates for LNG shipping globally, the prospects of recovering the capital investments in Greenfield are uncertain, the argument goes.

Further investments in a depressed scenario could also undermine the valuation of SCI during privatisation, they argue.

In the event of an exit from the project, it is not clear whether SCI would be able to either recover its $11-million equity or sell its 20 per cent stake.

Sources said that recouping the investment would be impossible since the total equity of $55 million sunk by the project sponsors has been completely eroded due to losses caused by the cash flow problems facing LNG Laxmi.

Significantly, the Gulf International Bank, the new lenders to the project, has re-valued LNG Laxmi at $160 million, which is $62.5 million less than the original building price of $222.5 million.

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