As the government plans to sell its entire stake in the Shipping Corporation of India, Vedanta and DP World are among prospective buyers

The container vessel “SCI Chennai” anchored at ICTT Vallarpadam, Kochi, when the SCI commenced its direct European Service in 2012.

After having launched the sale of Air India, the national airline, the Narendra Modi government has initiated the sale of the Shipping Corporation of India (SCI), the sole publicly owned shipping company in India, on December 22. The sale of the government’s stake in the SCI will result in the complete handover of the national shipping line to a private entity.

The Ministerial committee on disinvestment approved the sale of the government’s entire residual stake of 63.75 per cent in the company. It set February 13 as the deadline for submission of initial bids by interested parties. The value of the company’s shares—its market capitalisation—as of December 22, at Rs.85 a share, was about Rs. 4,000 crore. The Cabinet Committee on Economic Affairs had approved the sale in November 2019, but the pandemic delayed the sale.

The SCI is India’s largest shipping company. It has a fleet strength of about 60 vessels—crude oil tankers, very large crude carriers, petroleum product carriers, liquefied petroleum gas carriers, bulk carriers, container ships, apart from off-shore support vessels. It is estimated that the company has a market share of about one-third of Indian tonnage.

It was established on October 2, 1961, by amalgamating the Eastern Shipping Corporation and the Western Shipping Corporation. Soon after, it diversified into the strategically important role of petroleum transportation and, by the mid-1970s, acquired its own very large crude carrier (VLCC). In the 1970s and 1980s, it also acquired two private shipping lines which had fallen sick. It diversified into the transportation of chemical cargoes and acquired cellular vessels for moving containers and, still later, on to liquified natural gas transportation.

Under the Narasimha Rao government, which initiated the first round of privatisation in 1992, the first round of sale of equity was undertaken. Shares accounting for 18.5 per cent of the government’s stake were offloaded to mutual funds, banks and financial institutions; another 1.37 per cent was offloaded to these entities in 1994. In 2010, a public offer of shares resulted in the government’s stake reducing from 80.12 per cent to 63.75 per cent.

Media reports indicate that the Vedanta Group and DP World (Dubai Ports World) are interested in taking control of the SCI. While DPW, as a terminal operator, may see some synergies in tying the SCI to its operations, Vedanta may be interested in using its fleet for its mining and energy businesses.

Vedanta, which, in an earlier avatar as Sterlite, kickstarted the highly disputed disinvestment process during the first tenure of the Atal Bihari Vajpayee-led National democratic Alliance (NDA) government through its acquisition of Balco, is no stranger to controversy. Ever since its copper smelting unit at Thoothukudi in Tamil Nadu was established in 1996, it has drawn the continuous ire of the local community which has accused it of being negligent. The unit has been shut since 2018 when protests by the local community was fired upon, resulting in a number of fatalities (see “Massacre at Thoothukudi”, Frontline , June 22, 2018.)

Vedanta, clearly, is eyeing assets that are being sold off by a government whose revenues have been badly hit during the pandemic. However, observers ask whether selling assets to fund current expenditures is a prudent move at all. They argue that such assets, apart from being strategically valuable, offer returns to the government in the long run; to sell them now would be short-sighted, they argue.

Incidentally, Vedanta is also in the running for the biggest ticket offered in this round of privatisation, the Bharat Petroleum Corporation Ltd. Ironically, Vedanta’s prospective bids come after the company’s share buyback plan ended in a fiasco on the Indian stock markets. Vedanta was hoping to use the buyback to scale down its debt, but it failed because shareholders obviously perceived the offer price as being too low. The question of the prudence of offloading the SCI stake to an entity that is perceived to have over-leveraged obviously hangs in the air now.

With the global economy in its worst recession ever, with international trade in the middle of a collapse and with uncertainties posed by the ongoing pandemic, market analysts ask whether this is right time to sell a shipping company. Even if the decision to sell were to be somehow accepted as being rational and prudent, the timing of the move certainly raises doubts about the intent. Why would the government want to sell an asset when its price, because of the effects of the pandemic, is at rock-bottom? A piping controversy appears to be the only certainty.