SCI gets around fiat on fleet expansion

Shipping Corporation of India (SCI), India's premier line, has evolved a unique way of beating the government's guideline restricting fleet expansion during the divestment process.

It is routing its expansion through new subsidiaries floated by its joint venture Iran-O-Hind.

Iran-O- Hind, a venture with an Iranian company, has floated a subsidiary in Malta and is planning to incorporate another one in Mumbai through which it will route acquisitions.

"Since we cannot expand so much through SCI during the privatisation process, we are expanding through the joint venture. A subsidiary has been incorporated in Malta as that country is a tax haven. We are planning to set up one more subsidiary in Mumbai to cater to the Indian market," SCI Chairman and Managing Director P K Srivastava told Business Standard.

Iran-O-Hind is a 51: 49 joint venture between Iranian shipping company Irisil and SCI. Iran-O-Hind holds 98 per cent in the Malta arm with Irisil and SCI holding 1 per cent each. The shareholding will be duplicated in the Indian arm as well.

The government has approved SCI'S Rs 5,800 crore expansion plan in the Tenth Plan period. This also includes the acquisitions by its joint ventures.

During the privatisation of a public sector undertaking, the government places restrictions on capacity addition and clears these plans on merit.

The government's contention is that the new owner of a privatised undertaking should not be burdened with the previous owner's plans.

For instance, fleet expansion exercise will naturally take place over a period of a few years. This will mean that funds that should be available to the new owner have already been committed.

The government has allowed SCI to make fresh investments for the acquisition of only two very large crude carriers since the privatisation exercise was kicked off about two years ago.

The second attempt to privatise SCI is hanging fire as the corporation's employees have challenged this in court.

In the first round, the government had capped the foreign stake in SCI at 26 per cent, resulting in overseas investors staying away.

Despite this ceiling being raised to 51 per cent in the second attempt, foreign investors have stayed away from the last lap and the race is now confined to only domestic companies.