GESC

2006-08

The ICFAI University

2006-08

Great Eastern Shipping Co. Limited

The shipping sector will continue to be governed by the dynamics of
ever increasing globe trade. Also, with Indian sea-borne cargo traffic
expected to grow significantly in the years ahead, I believe our fleet
expansion will demonstrate Great Easterns ability to meet market
demands and clients needs.
K M Sheth, Executive Chairman, GE Shipping
Great Eastern Shipping Co. Limited, the largest private sector shipping company in India has
devised plans to restructure its shipping business and offshore oil field services through demerger.
In a conference held with analysts, the Executive Chairman Mr. K M Sheth announced that
through demerger, GE Shipping will be spin off into two companies GE Shipping headed by
Bharat Sheth, and GE Offshore headed by Vinay Sheth. Speaking to the press on the restructuring
plan, K M Sheth1, Chairman of Great Eastern Shipping said, The idea behind the demerger is to
unlock shareholders values and will result in sharper focus on the two businesses shipping and
oilfield services and given the growth momentum in offshore oil services, the new company will
be able to harness the potential in offshore business. The demerger, which will be effective from
April 1, 2005, will be completed before March 2006.
Earlier, for the fiscal year 2005, the Rs.37 billion GE Shipping thriving in a highly cyclical
industry reported a net profit of Rs.1,884.50 million in the Q2 of the financial year 2005-06
registering a 6 percent rise over the corresponding quarter of the financial year 2004-05. The
shipping markets are prone to high risks due to fluctuations in freight rates and substantial increase
in the prices of the ships. GE Shipping registered a comparatively high growth, generating a strong
profits and cash flows and delivering dividends to its investors. The company which operates in an
industry that is complex in nature and is highly volatile and unpredictable, has been paying
dividend to its investors on streak for 21 years continuously. For the FY 2004-05, the company
declared a total dividend of Rs.9 per share. With the freight rates firming up, industry analysts
expect the company bettering its previous performances in the current financial year 2005-06. The
companys ability to consistently explore opportunities and adopt appropriate business strategies
has ensured it to register a better performance every year.
The demerger was approved by the equity holders and secured creditors in September 2005; and
the new separate company Great Offshore Limited will come into being with effect from April 1,
2005 and this approval has also been informed to stock exchanges in November 2005. After
completion of the demerger, the Sheth family stake of 24 percent will remain unchanged in both
the entities and the boards of the two companies would perform their acts independently. The
paid-up share capital of Great Offshore Ltd. (GOL) will be Rs.380.70 million and GE Shippings
share capital will be reduced to Rs.1,522.70 million from Rs.1,903.40 million; and the net worth of
GOL would stand at Rs.4,461.20 million and that of GE Shipping after restructuring will stand at
Rs.17.41 billion. The shares of GOL will be listed on the Bombay Stock Exchange and National
Stock Exchange. The new company formed after demerger will continue the earlier devised plan
of implementing the capital expenditure scheme of $75 million towards offshore business that
1

Business Line September 16, 2005.

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includes purchase of six vessels. Bharat Sheth, Managing Director of Great Eastern Shipping
Company, speaking to the press, said the demerger move is part of business restructuring aimed at
unlocking the potential of the offshore business and to seize more opportunities. Under the
demerger plan both the companies have agreed not to enter into others business for one year, with
GOL focusing on drilling services, marine logistics, marine construction and port/terminal
services, offshore supply vessel services, constructions of barges and harbor tug services. Vijay
Sheth, the new Managing Director of GOL, speaking to the press said the intention not to enter
into other business for one year is to let each others business to grow. The demerger news gave
wings to Great Eastern Shipping Stocks with the traders buying the shares on buzz that the
offshore and drilling will get a very high valuation. The Great Eastern Shipping has seen a greater
swing in stocks, moving from Rs.177.40 on August 16, 2005 to Rs.211.30 on September 2005.
Market Analysts view that the high price-earnings multiples of the peer companies in the drilling
sector have given impetus to the stocks.

Shipping Industry
Shipping industry has been the backbone of world trade for ages with a world trading fleet of 46,
222 ships, of which about 90 percent are used for intercontinental trade, transport of raw materials
and import/export of manufactured goods. According to International Maritime Organization
(IMO), the world trading fleet was made up of 46,222 ships with a total tonnage of 597.71 million
gross tonnes.
Exhibit 1: World Trading Fleet
General Cargo

18,150

Tankers

11,356

Bulk carriers

6,139

Container Ships

3,165

Passenger Ships

5,679

Other Ships

1,733

Source: Review of Maritime Transport 2005 UNCTAD.

According to Institute of Shipping Economics and Logistics (ISL), the world merchant fleet stood at
26, 942 with a total tonnage of 779.70 million deadweight tonnage2 (dwt) at the beginning of the year
2005, with the top ten countries representing 71.80 percent of the total world merchant fleet,
including a high amount of foreign flag tonnage (Ship registered in a foreign country, than in the
country in which they are owned). According ISL about 94 percent of the total deadweight tonnage
of the world merchant fleet can be attributed to about 30 countries in the world, with OECD having
large proportion, and controlling about 68.70 percent of the total world merchant fleet.
In the world seaborne trade it is difficult to quantify the value of trade in monetary terms; the trade
estimates are generally quantified in terms of tonnes or tonne-miles. The industry susceptible to
economic downturns has been witness to a downturn during the worldwide economic recession in
the early 1980s and also during South East Asian crisis in late 1990s. But still over the last four
decades, the total seaborne trade nearly quadrupled from less that 6 thousand billion tonne miles in
mid-1960s to over 27 thousand billion tonne-miles by end of the year 2004. By the end of the year
2004, while the world output grew by 4.1, the overall world seaborne trade grew by 4.3 percent
reaching 6.76 billion tons loaded of goods. (See Annexure I). The seaborne trade grew largely due
to an increase in growth rate of iron ore and crude oil shipping, which grew by 12.60 percent and
7.60 percent respectively. About half of seaborne trade is in crude oil, oil products, liquefied gas
2

148

Dead weight tonnage is a measure of ship, which is the total weight including cargo, fuel, water,
engine, crew and stores which the ship can carry when immersed to a load line called summer load line.
Gross Tonnage is a measure of the carrying capacity of the vessel and 100 cubic feet of capacity are
equivalent to one gross ton. The gross registered tonnage includes space for cargo and space occupied
by machinery, bunkers, water ballast and crews.

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and thermal coal, followed by metals, which account for about 25 percent comprise raw materials,
steel products and non-ferrous metal ores and scraps. Agricultural products comprising agricultural
raw materials, food products and fertilizers account for about 13 percent, and the rest is comprised
of forest products and other industrial materials such as cement, chemicals, alumina etc.
The shipping industry is a perfect competition model with little or no entry barriers. Globally, the
shipping industry is fragmented with most shipping companies being relatively small due to the
capital-intensive nature of the industry. Vessels constitute about 90 percent of the fixed assets of a
typical shipping company. The shipping industry is segmented according to the needs of customer
transporting cargo. The industry is broadly segmented into bulk carriers, specialized shipping and
liner shipping. Bulk carrier transports cargo such as iron ore, steel, coal etc. The largest bulk
carrier can transport upto 200,000 tonnes. Specialized shipping includes tankers for carrying crude
oil and containers for transporting motors vehicles. Liner shipping specializes in the transport of
high-value traffic carried by container ships, roll-on-roll of vessels, small cargo parcels and
passengers. Ships transporting oil/chemical tankers, chemical tankers, liquefied gas carriers,
general cargo and heavy lift vessels, and ships supporting offshore oil industry and those
supporting small general cargo ships are categorized as other special vessels. At the beginning of
the year, the world trading fleet constitutes 46,222 ships with a combined tonnage of 895.8 million
dead weight tons with the fleet of oil tankers and dry bulk carriers together making up
73.30 percent of the total world fleet. The Crude oil tankers and dry bulk carriers are classified
based on their size. (See Annexure I and Annexure II).
Exhibit 2: World Seaborne Trade

Source: http://www.marisec.org/annualreview/annualreview.pdf
Exhibit 3: Different Sectors as a Percentage of Total
Number of Ships in the World Fleet 1 Jan. 2005

Source: Lloyds Register Fairplay.

Exhibit 4: Classification of Ships based on Size
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Crude Oil Tankers

Vessel Size

ULCC

300,000 + dwt

VLCC

150,000 299,999 dwt

Suezmax

100,000 149,999 dwt

Aframax

50,000 99,999 dwt

Dry Bulk Carriers

Vessel Size

Cape-size

80,000 dwt

Panamax

50,000 79,999 dwt

HandyMax

35,000 49,999 dwt

Handy-size
Source: Lloyds Register Fairplay.

20,000 34,999 dwt

Characteristics of Shipping Industry

Shipping industry is one of the most cyclical industries. It is characterized by the shortest
buoyancy period and longest recessionary period. Like the rising and falling sea waves, the
shipping industry is very volatile, cyclical with each cycle lasting about five to six years, and is
also greatly influenced by the world business cycle. Companies operate in a very dynamic
environment influenced by global political and economic factors. The industry is capital intensive
and is subject to stringent regulations. The shipping markets being increasingly risky due to
fluctuations in freight rates and high cost of ships, shipping companies invest heavily when freight
rates are on an upswing and when there is a boom in the world business trade. According to
Industry analysts there exists a strong relation between the economy, trade and shipping demand.
The growth in the world economy and trade increases the requirement of shipping. The volatilities
of freight rates also change over time depending on the global world trade, expectation and
uncertainty in the market and often affect the operating profits of the shipping companies.
Volatility of freight rates arises due to cyclical fluctuations in the business cycle and also due to
seasonal fluctuations. According to Industry sources, the freight rates for tankers increase during
November and December and drop between January and April. The freight rates for VLCC (Very
Large Cargo Carrier) rise in June/July, whereas the freight rates for Suezmax and Aframax drop in
June/July. Moreover, these seasonal fluctuations in the freight rates assert more during the market
expansions than under the market down turn. Compared to the dry bulk carriers, crude tanker
segment are relatively less volatile. Volatility of freight rates and ship prices depend upon the
cyclic fluctuations in the market.
Demand-Supply
The demand for shipping services is highly dependent on the level of economic activities and also
on the trade agreements between various trade blocks and regions. Order for cargo ships is high
when there is upward turn in the business cycle; dry dock results when there is downturn in the
business cycle and when freight rates are weaker. As ships are technically sophisticated and highly
valued assets and have an average economic life of 20 years, they require a high maintenance cost.
An LNG carrier cost around US$ 250 million, while a double-hulled VLCC costs around US$ 90
million and a Handysized chemical ship is around US$ 70 million. Keeping an adequate supply of
ships at all times and investing on ships in anticipation of future growth is one of the essential key
factors in the shipping industry. In such a scenario, a potential company in the shipping industry
wishing to acquire a vessel finds a considerable gap in its personal funds availability and
additional funds requirement. The high cyclic nature of the industry combined with high volatile
earning of the industry makes the investment process in shipping both risky and complex and calls
for management of investment process. Shipping firms are subjected to interest rate risk as they
buy ships through debt financing. According to industry sources, about 30 percent investments on
the ships are through their own funds and 70 percent is through debt financing. As the fleet is often
engaged in cross trading (trading outside their domestic waters), shipping industry is also
subjected to credit risk. Industry sources believe that sailing into shipping markets controlled by
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competitive market forces requires prudent risk management over anticipation of raise and fall in
freight rates and ship prices and minimizing a range of financial risks. Considering the inherent
volatility of freight rates, and the world maritime trade being dependent on the adequate shipping
capacity, freight derivative market was born in 1985, when Baltic Exchange introduced Baltic
Freight Index.
Exhibit 5: High Cyclical Shipping Industry
2500

2000

1500

April 88
Idle Bulk tonnage
at its lowest since
1980.

December 89
US Invasion of Panama.
Panama Canal closed.

February 91
Iraqi withdrawal
from Kuwait.

May 95
BFI reaches
all time high at
2352 points.

January 95
Earthquake on
Kobe - Japan.

1996
Record bulk carriers
deliveries 17.5 Mill
dwt.

June 93
Port Congestion
in China.

September 87
Sharp rise in Soviet
Grain purchases.

July 88
End of Iran/Iraq
War

1000

February 87
Soviet Grain Purchases
recommence after 9 months
of inactivity.

500

August 90
Iraqi invasion
of Kuwait.

October 92
BFI lowest level of
1992: 1033 points.

April 94
Active S. American
Grain Exports.
October 96
BFI lowest level since
1987: 992 points.

July 86
Index at all
time low at 554.

Source: Baltic Freight Index.

Exhibit 6: Baltic Dry Index

Source: Baltic Exchange.

The Indian Shipping Industry

India, with a long coastline of 7,515 km is located in geographical proximity to important shipping
routes; this gives a natural advantage for growth of merchandise trade and also for growth of
shipping industry. The Indian shipping industry is the lifeline of Indias international trade and is
estimated at $5.5 billion. The country has one of the largest merchant shipping fleet among the
developed countries and is ranked 19th in the world. The domestic shipping industry that started
with a mere 1.92 lakh gross tonnage at the time of independence has grown steadily and is ranked
among the top 20 leading merchant fleet of the world. Currently, India has about 704 ships with
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8.31 million gross tonnage and 13.73 million dead weight tonnage. The Indian merchant fleet
constitutes about one percent of the worlds total fleet in terms of numbers and 1.5 percent of the
cargo carrying capacity. Over the last two years, Indias gross tonnage has grown at an annual rate
of near 14 percent and much of it in the overseas tonnage. While 74 percent of the total Indian
cargo is moved by foreign flag vessels, the remaining 24 percent is by Indian flag vessels.
According to Industry sources, 56.60 percent of the Indian fleet comprises of oil tankers including
very large crude carriers and about 29.60 percent dry bulk carriers while about 3 percent comprises
of LPG carriers and 1.5 percent cellular container ships. The average age of the Indian fleet as on
date is 17.30 years as against the world average of 20 years. According to Industry sources, around
57 percent of the overseas fleet needs to be replaced in the next five years. As per the revised
regulation issued by the international maritime organization, single hulled tankers are to be phased
out and replaced with double hulled tankers by 2010. The domestic shipping industry is made up
of a few large players that include the government owned Shipping Corporation of India and a few
private players Great Eastern Shipping Company, Essar Shipping, Varun Shipping, Mercator
Lines and India Steamship Limited accounting for 90 percent of revenues. The domestic shipping
industry was in down turn during the economic meltdown of South East Asian countries and also
was affected by the recession in Russian economy. The slow growth in world economy in these
countries put pressure on the freight rates, and adversely affected the Indian shipping companies,
while the global shipping giants were able to sustain the falling freight rates. Over the years, the
share of Indian ships carrying the countrys cargo declined from 40 percent in late 1980s to
15 percent by the end of the fiscal year 2003. According to Industry sources, while Indias total
volume of trade has grown at the rate of 8 to 10 percent every year, the tonnage has not been able
to keep pace with it.
Indian Shipping industry is highly susceptible to recessions in the world trade and global shipping.
The industry fortunes are closely linked to international trade and merchandising scenario. The
shipping industry gets driven by various factors like freight rates, increase in operating costs,
dry-docking expenses, bunker expenses, which have medium as well as long-term implications,
making it difficult to make any comment on future earnings. Every ship has to be dry-docked
twice every five years to undergo a mandatory fitness test. The firm suffers from loss of working
days from the ship resulting in loss of revenue and also dry-dock expenses. Dry-docking expenses
depend upon the type of the ship and the extent of damage. According to industrial sources,
dry-docking expenses for a panamax would cost between Rs.4-8 million and normally it takes
between 10 to 15days of dry-docking for young ships and is even more in case of older ships. The
days of dry-docking also depends upon the facilities available. Bunker cost or fuel cost represents
50%-60% of a shipping operating costs and even a small saving greatly impacts the companys
financial performance. The volatility in freight rates and bunker price fluctuations could affect the
operating profits. Apart from the operating risks, the shipping industry also faces the risks like
ownership risk, interest rate risk, exchange risk apart from accidental and losses risk. The
ownership risk arises due to fluctuations in the value of the assets that include its scrap value.
Generally, firms sell their age-old ships for acquiring new ships or for generating cash flow.
According to Industry sources, the ships are sold depending upon the future freight rates and ship
prices and in most firms the sale of ships accounts for a high proportion of profits to shipping
companies.

Great Eastern Shipping Corporation of India

GE Shipping, the second largest Indian flag bearer and the largest private sector shipping
company, was incorporated in 1948; it was promoted by Mulji (Sheth) brothers and A H
Bhiwandiwalla & Co. The company began its trade from a small liberty ship SS Fort Elice
acquired from USA, and progressed from a domestic bulk cargo carrier to energy transportation
and offshore energy services.

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Exhibit 7: India Shipping Growth Pattern, Age Profile
Indian Shipping Growth Pattern

Period

Coastal

Overseas

Indian Ships

World

Ships

MGT

Ships

MGT

Ships

MGT

MGT

1997-98

234

0.643

244

6.200

478

6.843

439.00

1998-99

250

0.656

240

6.212

490

6.868

444.10

1999-2000

273

0.682

240

6.231

513

6.913

449.40

2000-01

316

0.697

230

6.119

546

6.817

475.20

2001-02

336

0.734

224

6.087

560

6.821

487.00

2002-03

425

0.805

191

5.372

616

6.178

503.00

2003-04

436

0.808

203

6.136

639

6.944

533.30

2004-05

458

0.811

228

7.202

686

8.013

546.60

Last 7 years

10.07%

3.37%

0.96%

2.16%

5.30%

2.28%

Last 2 years

3.81%

0.33%

9.26%

15.79%

5.53%

13.89%

CAGR

Age Profile
Age
< 5 years
5-9 years
10-14 years
15-19 years
> 20 years

Nos.
73
88
100
137
267

DWT
1,273,800
1,528,560
1,737,249
2,385,480
4,655,160

Source: www.imaritime.com
In a span of over 50 years, the company under able and dynamic leadership established itself and
grew to become the largest private sector shipping company in India, and earned the reputation of
being the most dynamic shipping companies in the world creating value for investors. The
company, during the regulatory control regime, took unconventional decisions by venturing into
bulk trading, establishing in 1974 a fully owned subsidiary at London for international exposure
and reach. The company has many firsts to its credit in the history of Indian shipping industry. It
was the first Indian company to place an order for construction of ships Jag Ganga and Jag
Jamuna at the Kobe Shipyard, Japan in 1949 and also the first Indian company to start a liner cargo
service from the west coast of USA and Canada to India. It was also the first Indian shipping
company in the private sector to acquire rigs. It was first Indian Company to venture into tramp
shipping trade and also the first company to acquire a tanker in 1956. According to Industry
sources, GE SHIPPING achieved significant growth despite the regulatory control during the preliberalized economy regime, when the government provided regulatory concessions to public
sector shipping company Shipping Corporation of India (SCI) and where the purchase and
acquisition of ships required mandatory approval from the government. The companys prudent
financial management had been instrumental in its survival on two severe recessions in the last
fifty years 1958-63 and 1976-86; during this period many shipping companies, both domestic
and international, sunk. The company has grown from strength to strength and at one stage was
contender to buyout the government owned Shipping Corporation of India, when the government
planned to disinvest the company. The company diversified into a variety of businesses including
real estate, property development, investment and commodities trading, providing offshore
services to oil fields and ports. The company also established two more subsidiaries at Singapore
and Fujairah. The Singapore operations was started in 1994, while the operations in Fujairah,
United Arab Emirates were established in 1999.
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Business Structure
GE SHIPPING Business Structure is divided into two major divisions Shipping division and
Offshore division. The shipping division offers transportation of crude, dry bulk and gas and its
offshore division offers offshore services and port support, and terminal services.
The offshore division owns the largest and most powerful anchor handling tugs. GE Shippings
offshore division operates under four businesses offshore drilling services, marine logistics and
port/terminal services, marine construction and projects services to construction barge and air
logistics. Its offshore division offers services to the oil companies by carrying out offshore
exploration and production activities, drilling services through drilling rings, offshore support and
logistics support for anchor handling tugs, supply of anchor handling tugs and vessels, and dive
support. Its OSV division was started in 1982, taking into consideration the ONGCs plan to
replace foreign Offshore Support Vessels (OSVs) with Indian ones. The companys offshore
division is exploring opportunities in the exploration and production sector and is looking forward
to expand its clientele. With global oil majors vouching for its offshore services, the company is
carving a niche for itself in the international market. At present it owns 42 Shipping fleet of total
tonnage of 3.017 million dwt having an average age of 13.80 years and 30 offshore fleet of total
tonnage of 0.44 million dwt having an average age of 16.20 years.
Major Clients for the Companys Offshore Division

Oil & Natural Gas Corporation

BG Exploration and Production (I) Ltd.

Cairn Energy (I) Pvt. Ltd.

Hardy Exploration & Production (I) Inc.

Mosbacher (I) Ltd.

Niko Resources Ltd.

Petrom SA.

Fleet Category
The companys shipping fleet category includes crude oil carrier, product carrier, gas carrier, dry
bulk carrier and its offshore fleet category includes Offshore Support Vessels (OSVs), harbor tugs,
construction barge and drilling units. The companys Shipping Division deploys its fleet overseas
as well as in coastal shipping. Though GE SHIPPING has a balanced fleet of bulk carriers and
tankers, it does not have any presence in LNG and container trade. It has also no presence in ship
repair, port development and coastal shipping. The company has mainly focused on dry and wet
bulk cargo.
Exhibit 8: GESCOs Fleet Profile
Category
Shipping Fleet
Crude Oil carrier

Product Carrier

Gas Carrier
Dry Bulk Carrier

154

Type

VLCC
Suezmax
Aframax
Panamax
Medium Range
General Purpose
LPG Carrier
Panamax
Handymax

Nos.

2
3
9
2
9
6
2
1
3

Total DWT
(Mt)
1,898,385

728,881

45,977
343,885

Average Age

14.00
9.50
11.70
19.00
11.00
22.20
22.00
10.00
21.00

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Category

2006-08
Type

Nos.

Total DWT
(Mt)

Average Age

Handysize

25.30

Platform Supply Vessels

13,233

2.00

Anchor Handling Tug

10,740

18.30

Supply Vessels

1,298

21.00

Anchor Handling Tugs

938

16.00

Diving Supply Vessels

11

1,382

8.50

Harbor Tugs

4,801

27.00

Construction Barge

7,600

31.60

Offshore Fleet
Offshore Support
Vessels (OSV)

Drilling Units
Source: Great Eastern Shipping Corporation, Annual Report 2005.

Capital Structure
The company began its trading business in 1948 with a capital of Rs.20 lakh. As on March 31, 2005,
the companys authorized capital was Rs.3000 million comprising 30,00,00,000 equity shares of
Rs.10 each and a paid-up capital of Rs.1903.40 million. The company repeatedly approached
equity markets to raise resources. The company raised the capital through redeemable convertible
bonds, and right issues. It also issued Global Depository Receipts and Euro dollar issue for raising
capital. It issued bonus shares frequently to reinforce and bolster investors interests in the
company. The company in 1984 first raised the capital in the market through redeemable
convertible bonds with an option for rights issue. The company issued 12,77,500 secured
redeemable bonds of Rs.100 each with rights option to convert 50 percent of each bond into 5
equity shares of Rs.10 each at par on 1 September 1985. The other 50 percent was to be exercised
once between 1st March 1987 and 31st July 1987. The company gave the bondholders an option of
converting the bonds into equity shares. Bondholders exercised their option in March 1986, where
about 11,21,856 bonds were converted into 56,09,280 equity shares. The company had given an
option of applying for the rights equity offered in October 1986. About 1,42,833 of the remaining
bonds exercised their option to convert into equity shares. In 1986 the firm offered a rights issue of
1,87,78,893 shares at par in proportion of 1:2 and also allotted 3,16,300 shares to employees and
3,82,243 shares to its business associates. The rights issue was oversubscribed and the company, in
order to retain the over subscription, issued additional shares of 46,94,974. In the same year, the
company converted its debts into equity shares by allotting 11,000 shares. It also allotted
30,00,000 shares to International Finance Corporation (IFC) at a premium of Rs.3 per share. Again
in 1990, IFC exercised the option of converting part of its outstanding loan into 3.25 million equity
shares of Rs.10 each at a premium of Rs.16.44 per share. Later, in December 1990, 32,50,000
equity shares were allotted to IFC in terms of their right to convert the balance of loans.
The company capitalizing on Section 33AC of IT Act, which allows a 100 percent deduction of
profits derived from the shipping business provided that amount is transferred to a reserve account.
According to Section 33AC, the shipping companies can transfer an amount equivalent to, twice
the aggregate of the paid-up share capital, the general reserves and the share premium account to
that reserve account (development rebate account) and deploy this amount for acquiring or
building only new ships. GE SHIPPING gaining benefits from the IT Act increased its paid-up

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capital more than four times by the end of 1990s. The tax benefits were removed in 2004 and the
government introduced tonnage tax.
Exhibit 9: Capital History of Great Eastern Shipping
Year

Shares Issued

Details

1985-86

11,996,780

Conversion of Debebtures

1986-87

26,829,464

Rights at Par 1:2; allotment to IFC (at Rs.13 per share,

conversion of debentures)

1987-88

3,692,620

Conversion of bonds, Allotment to IFC at Rs.16.87 per

share

1990-91

3,250,000

Allotment to IFC at par

1991-92

14,263,074

1993-94

108,338,343

1995-96

8,490,791

Bonus 1: 5
GDR issue at Rs 100 per share; conversions of loans,
Rights Issue 2:5
Merger with GAL

Source: www.greatship.com

GE SHIPPING Buyback
GE SHIPPING, being in a highly cyclical business, where temporary profits upswings alternate
with long slack periods, has weathered many downturns in the industry and proved its ability by
posting strong financials, generating steady cash for acquisition of new ships. In the post
liberalized economy scenario, the firm saw new opportunities and at the same time was exposed to
additional challenges and difficulties.
The company embarked on a replacement-cum-modernization program in early 90s. The
companys offshore services division GAL Offshore Services Ltd. merged with GE Shipping in
March 1995 and the company commissioned three distinct activities under its offshore division(i) Operation of tugs comprising Offshore Supply Vessels (OSV), harbor tugs and anchor handling
tugs (ii) Oil drilling and (iii) Offshore constructions. The merger was approved with swap ratio of
7 GES shares for every 4 GE shipping shares. In 1995, GE SHIPPING also set up a treasury
division under its modernization program for managing cash surpluses for effective deployment of
funds in ship purchases. The company had a surplus fund of Rs.3 billion raised from GDR issues.
The company acquired 184 built handymax bulk carriers and 1982-built product carrier under the
company replacement and modernization program. The company switched its trade patterns by
moving towards voyage charter reducing its coastal services. Under the liberalized EXIM policy,
the company began acquiring ships under self-financing scheme.
The Shipping industry being in down cycle, the company ventured into real estate business by
1992 and over a period of time spread its operations in Mumbai, Navi Mumbai, Gurgaon, Pune
and Bangalore. GESCO Corporation faced a hostile takeover from the Delhi-based Dalmia Group.
GE SHIPPING facing hostile takeovers began increasing its stake in GE Shipping through buyback of its shares. The Sheths hold a very low equity of 13 percent, while FIs, GDR holders and
small shareholders owned the rest. The company in December 2000 announced to buy-back shares
from open market worth a size of Rs.1500 million. The offer was opened between 26 December
2000 and 17 April 2001. The company bought back 42,940,921 shares from the open market
paying about Rs.34.91 per share. The company paid about Rs.1,499,065,552 towards the
consideration. Following the company buy-back program, the companys paid-up equity share
capital had fallen to Rs.2159.10 million, and the share of promoter holding was 19.70 percent,
while the FIs holding was 16.03 percent, FIIss 6 percent, IFCs 8.29 percent, GDR holders 4
percent and others 46 percent. The company again in August 2001 announced a second buy-back
156

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of shares from the open market at a price not exceeding Rs.42 per share upto a maximum extent of
Rs.1000 million. The offer was opened on 23 August 2001 and closed on 25 July 2002. The
company bought back 25,594,168 shares from the open market at a price of Rs.28.27. The
company paid about Rs.723,500,000 towards the consideration. With the two rounds of buy-back
of equity, the promoters equity share increased by about 10 percent to 24.53 at the end of
September 2002. While the promoter group of GE shipping increased its control over the
ownership of the company from the buy-back, industry sources believed that exiting shareholders
got a better deal out of the exercise. Industry analysts believe that the price of GE SHIPPING was
hovering around Rs.17.00, and the speculation of buy-back from the company raised the share
price to Rs.35 at the beginning of the December 2000. And after the second
buy-back the price of the share came down to Rs.27.35 towards the closure of the buy-back. The
companys cash outflow was to an effect of Rs.1750 million and the company issued preference
shares for Rs.950 million close on the heels of first round of buy-back.

Company Performance
GE SHIPPING, like others in the shipping industry, suffered during the South East Asia crisis and
also when the dry bulk shipment was facing its worst years during 1999. Its earnings from the
vessels and values fell affecting its profitability and also the vessels operating days. The South
East Asia crisis affected its earnings from tankers. The decline in oil prices affected its offshore
vessel division. The company saw upturn during the last quarter of FY2000 when the shipping
industry saw upturn in dry bulk shipping and vessel transportation following revival in South East
Asian countries and increase in production of oil by OPEC countries.
Exhibit 10: Company Revenue Performance 2003-05

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Source: www.greatship.com
Seeing the business opportunities in offshore business, the company began focusing on the fleet
expansion and modernization of its assets for greater international exposure. The company also
focused on de-risk strategies against the risks technical and commercial arising from market. The
shipping cycle in upturn for the last two years due to increase in freight rates due to increase in
demand for crude oil carriers, the company in the year 2002 went for its capacity expansion. The
company marked Rs.7000 million towards capacity expansion over the next two years. Earlier in
2001, the company purchased two 1996 built double hull product carriers at a cost of US$47 million.
The company also began focusing on tanker business. The company, in 2002, set aside a substantial
fund for buying out government stake in Shipping Corporation of India, the government owned
public sector shipping company. But when the disinvestments program did not takeoff, in 2003 the
company decided to move towards more investment program, investing in new and old ships and
concentrating both on shipping and offshore division. The company unveiled a mega expansion
program of $170 million in 2004 for acquisition of new and old ships. The company also planned to
utilize its huge cash reserves of Rs.6100 million kept aside for buying out SCI. Speaking on its
expansion program, the Managing Director of GE Shipping Mr. Bharath Sheth said An aborted bid
on Shipping Corporation of India (SCI) forced us to have a huge cash reserve.
We were saving every penny for the divestment for nearly a year. We did not embark on any
expansion program during 2002 and with the disinvestments process delayed, the company is
actively looking at shipping market for purchase. Vijay Sheth, the Managing Director of offshore
division defending the companys earlier decision of keeping huge reserves said, Shipping is
opportunistic, and one needs to move quickly when the opportunity strikes. The company utilized
its reserves for financing Rs.1000 million during the Iraq war and it is very difficult to raise funds
during the war time.
Exhibit 11: Company Revenues and Profit After Tax and Dividend Payouts

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Source: www.greatship.com
The company in the current fiscal year 2006 drew up long-term plans for its offshore business.
With the oil prices soaring high and more oil exploration taking place, the company finds an
opportunity to increase its earnings from its offshore services. The company intends to capitalize
on the discovery of new found gas reserves on both east and west coasts of India. The company is
focusing on acquiring new vessels and has place, new building order. The company, to focus more
on offshore business, has devised to restructure GE Shipping through demerger.

De-Merger Plan
The Board of Great Eastern Shipping on 15 September 2005 approved a demerger ratio of 80:20
for the proposed demerger of its offshore business. The new entity is christened as Great Offshore
Limited (GOL) and will be lead by Vijay Sheth who was earlier managing the offshore business.
After the board approval, the GE Shipping was split into Shipping and Offshore divisions in the
ratio of 80:20. As per the scheme approved by the Board, all shareholders will receive one fully
paid share of GOL of Rs.10 each for every five shares held and GOL will be listed on Bombay
Stock Exchange and National Stock Exchange. As a consequence of the split, the shares held in
GE Shipping will be re-organized to four shares of Rs.10 each for every five shares held currently.
According to Bharath Sheth, the Deputy Chairman and Managing Director of GE Shipping, who
will be leading GE Shipping said the new entity GOL will have 31 offshore vessels comprising of
17 Offshore Supply Vessels (OSV), 2 drilling rigs, 1 construction barge and 11 harbor tugs. GOL
will also be buying 7 more OSVs as part of its fleet expansion plan. The new firm GOLs business
now consists of drilling services, marine logistics, marine construction and port/terminal services.
The restructuring of GE Shipping was undertaken on the recommendation of Deloitte Haskins &
Sells and Kalyaniwalla & Mistry. According to the company reports there would no change in
overall shareholding pattern, as all shareholders will be issued shares in GOL on proportionate
basis. According to the company, the paid-up share capital of Great Offshore will be Rs.381
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million, and that of GE Shipping will be Rs.1523 million, against the existing Rs.1903 million.
The net worth of GOL as on April 1, 05, would stand at Rs.4461 million and that of GE Shipping
will stand re-organized at Rs.17.41 billion, against the existing Rs.21.87 billion. On the day of
announcement of the demerger, the shares of GE Shipping fell 1.5% to Rs.211 from Rs.214. Soon
after the announcement of restructuring of GE Shipping, CRISIL placed GE Shippings Rs.3,835
non-convertible debenture issues on Rating watch. The non-convertible debentures were earlier
given AAA/Stable.
Exhibit 12: Split-up Financials of the Two Companies
Post Merger (Rs. million)
Equity
Networth
Debt
Interest Cost
Cash as on 1st April 2005
BV per Share
NAV per Share
EPS pre Tax
ROCE (%)

GE Shipping
1,523.00
17,410.00
18,598.000
719.00
9,865.00
Rs.114
Rs.282 on June 30
Rs.44
5-7%

Great Offshore Ltd.

381.00
4,461.00
2,200.00
110.00
500.00
Rs.117
Rs.45
Rs.72
>10

Source:www.indiainfoline.com
While some analysts consider that the restructuring is split between the family businesses, a few
analysts from the industry sources believe the demerger will bring stability in offshore business.
As said earlier, shipping business is closely correlated with business cycles, movement in freight
rates compared to offshore business; industry sources believe that the offshore business will get
more amount of resources than being along with GE Shipping. Prior to demerger, the company has
lined up an expenditure of US$250 million for up to August 2007, of which US$160 million was
designated to shipping business and the rest US$ 90 million for offshore business.
Industry sources expressing optimism over the demerger point out that while the leverage for
offshore division stood at 0.5x,whereas the company leverage stood at 0.9x. Some Analysts point
out that though offshore revenues formed 20 percent of the total revenue of the company, only
about 9-10 percent of the revenue is from stable source and other part is earned from the OSVs
business, which continues to be Volatile. And moreover the companys drilling rig Kedaranath
capable of operating in water depths of 300 ft and 20,000 drilling depth was dry-docked for
refurbishment and its other jig Badrinath capable of operating in water depths upto 600 ft and
20,000 ft drilling depth required repairs as its sustained damages as a consequences of bad
weather. As a result, the offshore division for reported lower revenue in Q1 of 2005-06 and also its
harbor tugs.
With the demerger approved by the shareholders and the business prospectus for both shipping and
offshore business looking bright due to increase in freight rates, despite a slow down in the month
of July and August in 2005, the company expect there would be no loss of synergies as customers
to both the newly formed entities are different. Moreover with the growing demand for transport of
crude and petroleum products and growing offshore exploration in the country, the company
expects to reap profits in near future.

160

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ANNEXURE I
World Merchant Fleet by National and Foreign Flag 1995-2004

Source: www.imo.org

161

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ANNEXURE II
NATIONAL AND FOREIGN FLAG REGISTERED SHIPS BY DIVISION
OF AGE AND SHIP TYPE AS OF JANUARY 1ST, 2004

Source: www.imo.org

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2006-08

ANNEXURE III
World Tanker Average Sport Earnings

Source: www.imo.org

163

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2006-08

ANNEXURE IV
World Dry Bulk Average Sport Earnings

Source: www.imo.org

164

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2006-08

ANNEXURE V
Company Share Price compared co BSE Index

Source: ICFAI Research Team.

165

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2006-08

Annexure VI
Capital Structure of GE Shipping
GESHIPPING

Mar-95

Mar-96

Mar-97

Mar-98

Mar-99

Mar-00

Mar-01

Mar-02

Mar-03

Authorised

5000.00

5000.00

5000.00

5000.00

5000.00

5000.00

5000.00

5000.00

5000.00

5000.00 5000.00

Issued

2797.60

2882.30

2882.30

2882.30

2882.30

2594.10

2183.40

1908.70

2594.10

2183.40 1908.70

Paid-up Equity

2789.40

2875.40

2875.60

2875.60

2876.00

2588.40

2177.80

1903.40

2588.40

2177.80 1903.40

Preference
Bonus Equity

Mar-05

0.00

0.00

0.00

0.00

0.00

0.00

950.00

0.00

0.00

95.00

0.00

388.20

388.20

388.20

388.20

388.20

388.20

388.20

388.20

388.20

388.20

388.20

Source: www.greatship.com

166

Mar-04

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2006-08

Annexure VII
Equity Pattern
No. of Shares

% of Total Shares

No. of Shares

% of Total Shares

No. of Shares

% of Total Shares

Promoters Holding

4,55,05,018

23.91

4,54,90,318

23.90

4,61,55,804

24.25

Indian promoters#

4,55,05,018

23.91

4,54,90,318

23.90

4,61,55,804

24.25

4,55,05,018

23.91

4,54,90,318

23.90

4,61,55,804

24.25

Govt. Holding

0.00

0.00

0.00

0.00

Foreign promoters /
collaborators

0.00

0.00

0.00

0.00

Non-promoters Holding

14,48,34,957

76.09

14,48,52,087

76.10

14,41,86,601

75.75

Institutional investors

6,53,49,038

34.33

6,43,97,686

33.83

6,70,99,052

35.25

Mutual Funds and UTI

2,00,10,231

10.51

1,92,04,469

10.09

1,46,49,791

7.70

Banks, FIs, Insurance Cos.

2,48,58,067

13.06

2,62,17,495

13.77

2,54,37,713

13.36

FIIs

2,04,80,740

10.76

1,89,75,722

9.97

2,70,11,548

14.19

Others

7,94,85,919

41.76

8,04,54,401

42.27

7,70,87,549

40.50

Private corporate bodies

1,39,35,094

7.32

1,47,55,225

7.75

1,33,56,730

7.02

Indian public

6,28,31,814

33.01

6,36,66,342

33.45

6,18,04,344

32.47

27,19,011

1.43

16,26,960

0.85

15,25,101

0.80

0.00

4,05,874

0.21

4,01,374

0.21

19,03,39,975

100.00

19,03,42,405

100.00

19,03,42,405

100.00

Private Holding

NRIs/OCBs
Any other
Total equity holding

Source: www.greatship.com

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ANNEXURE VIII
Financial Report of GE Shipping Corporation
1995-96 1996-97 1997-98

1998-99

1999-00

2000-01 2001-02

2002-03

2003-04

2004-05

PROFIT & LOSS A/C

Revenues:
Income from operations
Profit on sale of ships
Other income

72,384

78,122

88,102

92,896

91,464

108,068

117,243

95,547

135,194

204,920

3,383

956

1,693

54

4,795

3,598

58

1,598

860

2,475

7,357

8,729

6,615

5,090

3,187

3,836

2,234

3,570

6,581

4,528

83,124

87,807

96,410

98,040

99,446

115,502

119,535

100,715

142,635

211,923

49,237

48,546

49,508

53,951

57,242

60,808

60,798

48,438

61,318

84,395

Expenditure:
Operating expenses
Administration expenses

3,911

3,962

4,844

5,894

5,361

7,297

8,259

7,004

7,317

11,623

Operating profit (PBIDT)

29,976

35,299

42,058

38,195

36,843

47,397

50,478

45,273

74,000

115,905

Interest & finance charges

PBDT
Depreciation

4,533

6,906

6,504

5,782

6,081

7,174

5,027

3,900

4,695

8,287

25,443

28,393

35,554

32,413

30,762

40,223

45,451

41,373

69,305

107,618

9,031

12,251

15,581

16,470

18,117

20,082

20,173

16,798

20,121

28,500

Provisions & Capitalizations

(1,278)

850

500

PBT

17,690

16,142

19,123

15,443

12,645

20,141

25,278

24,575

49,184

79,118

2,500

2,700

2,800

1,600

2,400

2,600

850

2,700

2,200

1,928

2,074

(263)

(4,738)

Tax:

Current

2,450

Deferred

PAT

15,240

13,642

16,423

12,643

11,045

17,741

20,750

21,651

46,747

81,656

117,487 132,254

134,190

165,911

168,043

152,352

168,076

167,258

232,852

287,418

BALANCE SHEET
What the Company owned
Net Block
Ships under construction
Investments & net Current assets
Deferred Taxation (Net)
Total

4,477

7,522

10,643

5,163

9,192

12,950

15,002

22,343

32,715

60,385

58,691

55,213

41,572

43,193

37,644

46,065

56,430

59,938

106,148

182,349 198,467

200,046 212,646

211,236

199,188

227,091

238,690

315,133

426,687

406

145,900

207,975

What the Company owned

Secured loans

64,536

62,161

73,405

80,488

69,347

79,485

88,553

Unsecured loans

19,037

21,014

20,067

20,047

13,292

13,908

13,533

Deferred Taxation (Net)

10,072

12,739

12,476

Total

71,705

71,705

83,573

83,175

93,472

100,535

82,639

103,465

114,825

158,376

207,975

28,754

28,756

28,756

28,760

25,884

21,778

20,256

19,033

19,033

19,034

9,500

17,000

7,500

7,500

87,320

88,031

98,425

130,693

Shareholders' Funds
Equity Share Capital
Preference Share Capital
Reserves & surplus

91,141

92,334

86,927

83,019

87,104

199,870

(1,129)

(966)

(3,026)

(1,920)

(2,110)

(2,049)

(1,661)

(1,093)

(469)

(192)

110,644 114,894

116,871

119,174

110,701

116,549

123,626

123,865

156,757

218,712

Misc. Expd. (to the

extent not w/off)
Total
Debt. Equity ratio (times)

Eaming per Share (in Rs.)

11

24

42

Dividend per Share (in Rs.)

Source: www.greatship.com

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ANNEXURE IX
Fixed Assets
Particulars
Fleet
Plant & Machinery:

Rigs and Barges

Others
Land
(Freehold & Perpetual Lease)
Land (Leashold)
Ownership Flats and Office Premises*
Furniture, Fixures and Office
Equipment
Vehicles
Sub-Total

As at
April 1, 2004

Additions for
the year

Cost
Deductions for the
year (Note 4(b)

As at
March 31, 2005

Upto
March 31, 2004

352689
273527

87839
97719

8872
18557

431656
352689

128135
114938

4418
4418
320
1287
4371
4388
5
5
4620
4497
2667

581

444

1
494
262

23
967

17

172
371
77

4418
4418
878
320
4815
4371
5
5
4449
4620
2852

4344
4344
229
1179

1
1
1470
1373
2363

3382
801
773
369891
292277

91
238
120
89365
98424

806
188
92
9332
20810

2667
851
801
449924
369891

2766
497
418
137039
125019

Ships under construction/Capital Work-in-Progress

*
The Ownership Flats & Office Premises include Rs.13,020 (Previous Year Rs.15,770), being value of shares held in various co-operative societies.
Previous year figures are in italics.

Source: www.greatship.com

169

Adjustments in
respect of Assets
sold/discarded
2822
6211

Depreciation
For the year

Upto
March 31, 2005

Impairment Upto
March 31, 2005
(Note 4(d)]

Net Block
As at
March 31, 2005

27714
19408

153027
128135

278629
224554

23
966

80
69
72

73

72
16

146
166
247

4417
4344
278
229

1
1
1536
1470
2538

135

1
74
600
91
4815
4371
4
4
2778
3150
314

793
171
62
3168
8101

390
248
141
28500
20121

2363
574
497
162371
137039

135

304
277
304
287418
232852
32715
22343
320133
255195

GESC

References
1.

DNV Classification News on Maritime Industry No.4, September 2005.

2.

Review of Maritime Transport Report 2004, Report 2005, UNCTAD.

3.

www.angelbroking.com, 2005 report on GE Shipping.

4.

www.balticexchange.com

5.

www.ifsl.org.uk Maritime Services, October 2005.

6.

www.imo.com (international maritime web site).

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