Mercator Lines to pre-pay loan, not default: Management

Shipping major, Mercator Lines has been in news for more than one reason. Apart from wind of an initial public offering (IPO) in the coal mining division, there is also talk of a default in loan payment by the management. Atul Agarwal, joint managing director of Mercator Lines joins CNBC-TV18 to clear the air.

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

Q: There is news of a loan repayment default by your company. Can you provide clarity on it?

A: I have also heard about this. Let me reply categorically that there has been absolutely no problem in repayment of any loans. We have not defaulted on any loan. In fact, we are in the process of pre-paying some loans, probably in the next three months.

Q: Could you give us the exact figure of debt and what is the kind of payment schedule you have going forward?

A: On a standalone basis, we have a debt of about Rs 1400 crore and you must also realize that the debt-to-equity ratio is only 1.4. So there are some debts which are coming up for payment due during this month. We have enough cash to repay that. There is no problem. In fact, we are in the process already. Like I said earlier, in the next quarter, by December, we plan to pre-pay some debt to reduce the debt exposure.

Q: How much would you be pre-paying?

A: We plan to pre-pay roughly in the region of Rs 350-400 crore. So our debt will reduce to less than Rs 1000 crore. It will bring us to 1:1 debt-equity.

Q: Can you take us through your coal mining operations? We understand that your subsidiary is looking to acquire another coal mine in Indonesia. Any updates?

A: Yes, we are in the process of acquiring another coal mine and because of the holidays of Eid and Hari Raya in Indonesia, we are unable to conclude the deal this week. We are in the process and hope to conclude it within the next 10 days. This is relatively a larger coal reserve and the coal resources over there are in excess of 50 million tonne and we hope to start production in the fourth quarter of the current financial year.

Q: How is business panning out with respect to your cash generation and even going forward your plans to pre-paying the debt, apart from what you have in September and December?

A: The cash profit that the company has generated during the quarter is about Rs 120 crore which is enough to meet our debt liabilities. What is not doing well is only the shipping division, and that too only the tanker division. If you notice, in the last one month, the Baltic Dry Index (BDI) has gone up by about 33%. We are earning money in our dry bulk division, it is only the tanker division which is not earning.

There are sufficient cash being generated in our coal division. Coal in this last quarter has generated more than 60% of the revenue and the bottom line has been in excess of Rs 40 crore. Besides, our new Mobile Offshore Production Unit (MOPU) and Floating Storage and Offloading (FSO) got commissioned on the 30th of April. So in the first quarter, what you see our results were only of two months.

In the following quarters, the revenue will be far greater and cash flows from there will be greater as well. In fact, it is doing well. We have got a nine-year contract on which the daily hire is in excess of USD 110,000 per day. So it is a pretty good contract that we have over there. Hence, in the coming quarters, you will see that these incomes will also kick in.

Q: So between shipping and offshore, in the coming quarters, what should we pencil in revenues? Rs 350 crore thereabouts or even more?

A: It should be larger than that.

Q: When are you expecting the IPO of your coal mining unit?

A: That has not been finalized. It will take some time. It is still under discussion.

Q: You said that your Indonesian project will start giving you revenues from the fourth quarter. So what do we estimate in terms of a quarterly run rate from your coal mining operations in the remaining three quarters?

A: For the first quarter, the revenue from coal mining was in excess of USD 100 million, an excess of Rs 450 crore. We definitely will do better than four times of that. The last quarter should be the best quarter.

Q: When exactly can we expect the IPO? You said that you were in discussions but does it happen in this calendar year?

A: Hopefully towards the end of this financial year.