Fall in dry bulk asset prices, Chinese meltdown hit Q4 show: SCI

The dry bulk sector performed poorly in the fourth quarter of FY16 for the Shipping Corporation of India (SCI). It was mainly bogged down due to a 50 percent decline in dry bulk asset prices, says BB Sinha, CMD, SCI.He also says SCI's liner business has faced losses due to declining freight rates which has arisen due to the China meltdown. But he says its offshore sector is doing well.The company had reported a net loss of Rs 7.02 crore in the fourth quarter of FY16 as against a profit of Rs 101.5 crore in the same period of the previous year. Below is the verbatim transcript of BB Sinha's interview with Reema Tendulkar and Mangalam Maloo on CNBC-TV18.Mangalam: In the fourth quarter, we saw the company posting an impairment loss of almost Rs 136 crore because of which we saw the drag coming in on the earnings before interest, taxes, depreciation, and amortization (EBITDA) as well as the net profit. Could you tell us what exactly that was, are such more write downs likely in the next fiscal?A: No, this shouldn’t have happened, but the dry bulk sector there has been decrease in the asset prices, that goes without saying and primarily because we have a large fleet of dry bulk carriers of about 17 ships and a few of them had seen a drop in the prices, so primarily because of that reason we had to take this hit which is a book loss, tomorrow when the prices are up this can well be written back.Reema: As of now your dry bulk prices have been mark to market (MTM), in the near term you don’t foresee the need to perhaps reduce it further, impair it further?A: That’s right, yes whatever was there we have already accounted for it. We wanted to have a clean record, clean slate as such, so whatever was there we thought it better to take that hit right now, because since the going was good and to come clean on that score. Therefore, a conscious call we have taken and we have decided to take this impairment loss, but otherwise there is no need for any impairment loss going forward. Whatever was there we have already accounted for it and tomorrow when the assets prices are actually on the rise, we can write back all this.Reema: What’s been the decline in the asset prices in the last one year say?A: There have been a very sharp decline as far as the dry bulk is concerned, but if you see the total prices of the vessels that we have in our portfolio, quite a few of them especially the tankers have seen stupendous growth in their asset prices. So, overall there is no impairment, if you ask me there is no impairment overall, because if you talk about the offshore, if you talk about the container ships, if you talk about tankers and the product tankers that we have.Reema: For dry bulk.A: In some cases it has been close to 50 percent, especially, in the dry bulk, but if you see the tanker market the crude tankers and the product tankers they have seen a rise in their asset prices close to about 25-30 percent. So, overall SCI asset portfolio has not come down.Mangalam: Another thing I wanted to know from you is, what led to the weakness in your bulk segment as well as your liner segment. Bulk segment, we understand that the dry bulk index has been at historic lows as well, but the liner segment what is the correlation that that the segment has with regards to crude prices, because we have seen a bit of a rally in the crude prices from the start of this year and that has resulted in a weakness in your liner segment business as well.A: Liner segment business has nothing to do with crude prices, basically it has got to do with Chinese meltdown and also with our exports coming down for over 14-15 months in a row. The merchandise exports are at all time low. In fact, the containers freights are being almost at their 30 year low now, so if you see the Shanghai Container Index it has been going down and down. Basically the containers freights are at their 30 year low, you can have a container shipped out from Nhava Sheva to Europe for about as less as USD 150-200 that is the level of freight we are looking at today and because of that low freight rates the liner segment has made a loss.Mangalam: In that case why you are continuously adding on to the new capacity as well as on April 18, the company informed the exchanges that the company will acquire a second hand platform supply vessel, so what’s the outlook for FY17?A: That second hand platform vessel is in the offshore sector, I was talking about the liner that container business. The offshore sector is doing well and all these supply vessels that we are acquiring is against the fixed project. There is a market for it and against a fixed order we are acquiring all these second hand vessels.