Outlook for Indian shipping sector negative in 2012, says Fitch

31 Jan 2012

Portraying a negative 2012 outlook for the Indian shipping industry, ratings agency Fitch said Indian shipping companies are likely to report reduced cash flows in 2012 from a fall in revenues and profitability, which will weaken their credit metrics.

In its 2012 Outlook: Indian Shipping Sector, Fitch attributed this on the unfavourable demand-supply dynamics in the global shipping industry driven by low global-trading levels accompanied by fleet additions across segments in 2012 that would be a significant drag on the revival of charter rates during the year.

Among Indian companies that embarked on large debt-funded capex programmes during 2008-2009, when asset valuations had peaked, are likely to face challenges in debt servicing, considering the typically short tenure of rupee terms loans availed for ship acquisitions.

Even companies that availed of dollar loans are likely to face liquidity pressures in 2012, considering the rupee depreciation, which has translated into higher cash outflows for debt servicing. Moreover, the current trend of risk aversion and deleveraging by European banks reduces the likelihood of existing dollar loans being refinanced.

Fitch expects charter rates in 2012 to be constrained across segments - dry bulk, tankers and container vessels.

The agency believes that the dry bulk segment could be particularly impacted in the Indian scenario as over 50 per cent of capacity additions to the Indian fleet in FY12-FY14 (financial year ending 31 March) are likely to be in this segment.