Approval for government buyback not in agenda yet: SCI

Excerpts from Markets Midday on CNBC-TV18 Watch the full show » ALSO READ See latest News about Shipping Corp See previous management interviews See what other Experts & Brokerages are saying about Shipping Corp Shipping Corp BSE | NSE 31/05/12 Are Mutual Funds betting on Shipping Corp?

Shipping Corporation of India (SCI) is one of the candidates for government buyback of shares. However, S Hajra, chairman and managing director of the PSU says that approval for a buyback is not on the board's agenda yet. "The buyback plan has not been finalized," he says.

With slowing growth and lesser exports, the shipping industry in India had come under pressure during the first half of the year. Hajra is confident of better times going into the next half. "I don't expect outlook for shipping to deteriorate further in H2FY12," he says.

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: Have you heard anything from the government on its buyback plan? Currently what is the cash on the books for your company?

A: There have been some indications that government is thinking about when they should be generating funds through buyback of shares by PSUs. I have also read in the newspaper that SCI is very much in the list.

Our cash surplus is hovering in the region of Rs 1,900 crore or thereabouts. It is just below the 50% turnover figure. Turnover is different every year but it is around Rs 4,000 crore. So, the exactly date that is reckoned will the important thing because because just a few months back we had a cash surplus of about Rs 2,400 crore. If that figure is taken then we are above 50% but at the moment it has come down to about Rs 1,900 crore.

The board has not even considered this matter so it is far too premature for me to say how this will shape up. We do have cash surplus but we also do have an ambitious acquisition plan. We have about 27 vessels on order and substantial equity component of that will be required to be generated from our cash surplus.

The shipping is going through a lean phase so the internal research innovation is expected to be down for sometime. We would like to have an adequate buffer with us for quite sometime in terms of cash which is looked very positively by our lenders particularly foreign lenders. SCI having reasonable cash is always taken as a very positive sign.

So, we would like to conserve as much as cash as possible with us. However, I would not be able to give a very specific comment about the company's thinking on the buyback as this matter has not been fully deliberated at any forum including board as yet.

Q: Did the government ask about SCI's likely cash balance?

A: This is always available with the government.

Q: Did the government ask you about the cash and capex plan?

A: We have worked out our tentative cash flow for the next five years. It all depends on the shipping market which is very down these days. That is available with our board as well as with our ministry.

As far as the buyback situation is concerned, there has been more of a preliminary indication from the government that in-principle government is looking at this option, not specifically for SCI but for many PSUs. The topic did come up formally at a discussion but nothing concrete has taken shape as yet.

Q: If the board does discuss some extent of buyback that SCI may have to do - would it impact your plans very significantly? What is the possible amount that may have to go for such cross holding or buyback?

A: No. I won't be able to answer because this has not been deliberated. Without proper deliberation it will be very unfair on my part to share anything with the general public.

Q: The Baltic dry bulk segment indices have even fallen further. What will be the second half revenue growth like? Is it likely to be duller than the first half?

A: I will not be able to comment on this.

Q: I am not asking you for specific numbers. Directionally how would they look?

A: Directionally as far as SCI is concerned, I won't be able to say anything. For the shipping industry as a whole, the first half has been bad enough. I don't see it getting any worse further .

For the dry bulk, container market and tanker it is hovering more or less at the same level. Little bit of ups and downs in Baltic Exchange Dry Index (BDI) doesn't indicate anything. That is only the reflection of that particular week's or month's situation, it doesn't mean much.

Q: Since all these PSU buybacks is done, in order to sure up the government's money in this fiscal year, have you all been told that please go ahead and take a board approval to enable the company to go in for a buyback anytime soon?

A: No we have not receiver any instruction from the government. In any case, today PSUs are primarily and predominantly board driven companies. So government will not give an instruction to get approval from board. It will be purely left to the board.

Q: Currently what is the debt on the books and were you all planning to use any of the cash to repay back some of the debt?

A: No we are not planning to payback any of the debt. It will be in our interest to conserve as much cash as possible. The current debt will be about Rs 3,000-3,500 crore. Our debt-equity component today is about 0.7 times. This is a very healthy figure because many shipping companies in the world are highly leveraged and their debt-equity ratio is between two-three and even five.