SHIPPING MINISTRYS REQUEST TO CENTRAL BANK - RBI May Ease Debt Recast Rules for Loss-making Shipping Cos Getting the shipbuilding industry, which has immense potential to generate jobs, back on track would provide a fillip to PM Modis Make in India initiative that aims at boosting manufacturing Prime Minister Narendra Modis `Make in India initiative may come to the rescue of an industry that has its fate closely tied to economic cycles shipbuilding.The shipping ministry has asked the central bank to relax rules allowing shipbuilding companies which are sitting on huge losses to go in for a second round of debt restructuring. “We are not in favour of a bail-out package for the sector, but we want to address the systemic issues,“ said a senior government official on the ministrys proposal. Banks have to write off part of their loans if the first round of debt recast fails. The shipping ministry wants the Reserve Bank of India to ease this rule for fund-starved shipbuilders so that they could undertake a fresh round of restructuring and raise finance as they try to revive business. An RBI approval for a plan that wont increase their bad loans would likely encourage banks to extend more money. The RBI has given such leeway to certain sectors, including the solar industry, the official said, justifying the demand. The shipbuilding industry in India is in a turmoil. Manufacturers had built up large capacities, often by taking on debt, when growing global trade had driven up demand for ships. But, over the past five years, as the global economy hit an uncertain patch, new orders dried up and existing orders were either postponed or cancelled. To add to the local industrys woes, the government withdrew a programme that offered a 30% subsidy on the cost of building ships. Lack of government support led overseas competitors to outbid Indian manufactures in a market where new contracts had become few and far between. “Companies were hit from multiple angles as they had already borrowed loans and gone for capital expansion, buoyed by so many orders,“ said Manish Sharma, executive director-infrastructure, at PricewaterhouseCoopers India. The `Make in India campaign aims to boost manufacturing as a way to increase employment opportunities and speed up economic growth. Getting the shipbuilding industry, which has immense potential to generate jobs, back on track would provide a fillip to this initiative. Among the top shipbuilding companies, Bharati Shipyard, ABG Shipyard, Hindustan Shipyard and Goa Shipyard are all in some sort of stress. Some public sector shipbuilding companies like Co chin Shipyard have managed to stay afloat because of orders from the navy and air force, where the profit margins are decided in advance. Bharati Shipyards has been Shipyards has been under the corpo rate debt restruc turing (CDR) mechanism since 2012. It reported a Rs. 843 crore loss on a ` turnover of Rs. 203 crore in fiscal 2014, highlighting the lack of demand the company is facing and the high finance charge it pays on debt that Rs. 4,000 crore.totalled ` ABG Shipyard reported a net loss . 56 crore on a turnover of ` of Rs. 266 crore in the March 2014 quarter, while state-run Hindustan Shipyard posted total income of ` . 562.50 crore and a loss of Rs. 55 crore in fiscal 2013, the latest year for which numbers were available. Goa Shipyard, another govern ment company, posted a net loss of . 61 crore on a turnover of Rs. 553 crore in fiscal 2014. Bharati Shipyard has a fairly large order book, but experts say it is not in a position to fulfill those commitments because of the restrictions of CDR. Lack of cash flow poses a challenge to the entire restructuring exercise. While, ABG Shipyard has completed restructuring its Rs. 10,000 crore debt, more than a dozen more lossmaking companies are likely to enter the CDR process in the near future. “This (governments) move will help us in giving a leeway. But the process would not be smooth, involving a lot of paperwork, meetings, etc.,“ said Dhananjay Datar, chief financial officer of ABG Shipyard.The shipping ministrys proposal to the RBI is a part of a Cabinet note for a comprehensive shipbuilding policy, as proposed in this years budget.
Posted on: Wed, 05 Nov 2014 11:27:21 +0000
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