The Ministry of Social Affairs will solicit donors for the SCI, Infra News, ET Infra split project
MUMBAI: To expedite the privatization process, the Ministry of Commercial Affairs will convene a meeting with the lenders of Shipping Corporation of India Ltd (SCI) to assess their views on the revised split program, which involves the transfer of 1,000 crore of rupees of the company’s excess cash to the non-core company resulting from the listed entity before the sale.
Banks and financial institutions that are exposed to SCI will be called for a meeting with the Ministry of Corporate Affairs which is responsible for verifying the split program, multiple government sources said.
State Bank of India, EXIM Bank and Standard Chartered Bank are SCI’s main lenders.
“Lenders will be asked to provide their views – consent or dissent – on the revised split plan at the meeting,” said a government official briefed on the plan.
This is a departure from the process followed when seeking a No Objection Certificate (NOC) from lenders for the earlier demerger scheme which involved the transfer of Rs 450 crore of excess cash to the company not essential named Shipping Corporation of India Land and Assets Ltd (SCILAL).
For the previous spin-off program, SCI had requested and obtained consent letters from each lender.
“For the revised split program, we are not asking for individual consent from lenders as it is fraught with delays. This is done to speed up the split process and speed up the privatization of the company,” said the government official, who did not want to be named.
Approval of the lender is a key requirement of the splitting program as per the standards stipulated by the market regulator, the Securities and Exchange Board of India or SEBI.
Once the Ministry of Corporate Affairs has approved the revised division regime, it will be filed with the Registrar of Companies to make it effective.
Banks could raise objections to the planned higher transfer of funds, which was set at Rs 450 crore in the original plan of arrangement approved last year, as it would hurt the company’s ability to deliver the service. debt, would increase SCI’s risk profile among banks and force lenders to reassess the loan, according to an executive at a management consulting firm.
The huge amount that needs to be withdrawn from the company’s excess cash is also expected to impact its ability to continue day-to-day operations, he added.
“The resulting rise in interest rates will put further pressure on SCI’s cash flow and will likely disrupt payments to suppliers, including those related to critical repairs and maintenance of the company’s vessels that are needed. to do business and generate revenue,” said a banking executive. knowingly, asking not to be named.
SCI has a cash surplus of Rs 1,406.91 crore (cash and cash equivalents and bank balances) as of March 31, 2022, according to its latest financial statements.
If Rs 1,000 crore is withdrawn and given to SCILAL, the main company which does the core business of ship management is left with only Rs 406.91 crore. Of this amount, Rs 133.85 crore is the balance of funds raised through a follow-on public offering in December 2010, which can only be used for the purchase of vessels, in accordance with the objects clause set out in the prospectus sale of shares.
Indeed, SCI would then be left with Rs 273.06 crore, which will be largely insufficient for company management to run the show and make money, potentially ‘suffocating’ the shipping carrier, putting it under financial pressure. and on the way to becoming a loss. manufacturing entity.
As a result, the government is likely to struggle to convince lenders to support the revised spin-off program, aimed at facilitating the privatization of the main company by unlocking business and asset value. The government’s position is that the value of non-core assets is not reflected in the value of SCI’s core business (core assets) and should therefore be separated prior to sale.
In December 2020, the Department of Investment and Public Assets Management (DIPAM), which manages asset sales for the government, launched the process of privatization of Shipping Corporation of India, a public sector company known as “navratna”, by selling the 63.75 percentage of capital to a strategic buyer.
SCI is India’s largest shipping company by fleet size, operating 59 vessels of various types.