Will FM do well by announcing Maritime Development Fund to ease cash flow worries for fleet owners?, ET Infra

MUMBAI: Government policy chiefs have announced the launch of the Maritime Development Fund (MDF), which aims to support India’s ambitions to become a “world’s leading maritime player” and expand low-cost, long-term capital into the sector. I’m working on a concept.

Several options are being considered to establish a Maritime Development Fund as a mother fund, following models adopted in other countries, such as BNDES Brazil and the Malaysian Maritime Development Fund.

One option is to create a dedicated maritime vertical under the newly established Development Finance Institution (DFI), the National Bank for Infrastructure Development Finance (NaBFID), to house the Fund. The planned verticals will be staffed with teams of sector experts who will assess and evaluate the projects.

The second option being considered is to establish the Fund as an independent company wholly owned by the Union Government and multilateral/bilateral financial institutions. A multilateral/bilateral agency may acquire majority ownership (over 51%) in the company in order to breach the sovereign rating. The remaining shares are proposed to be initially held by the Ministry of Ports, Shipping and Waterways (MoPSW) either directly or through one of its affiliates. This enables superior ratings and enables MDF to raise funds at more competitive rates than what Indian entities/sovereign entities can raise globally and domestically.

According to the plan, the mother fund will consist of non-bank financial companies primarily engaged in lending activities, investment vehicles/alternative investment funds that will participate in the project as equity investors, and asset rehabilitation companies (ARCs)/disaster funds. It will work towards recovering non-performing assets (NPAs) from the books of secured lenders and unlocking the value of NPAs, according to documents seen by ET Infra.

This requires amendments to the existing regulations (NBFC-IFC, AIF, ARC) for efficient operation of MDF.

In order to create long-term sustainability for the Fund, in addition to adjusting policies to facilitate the flow of revenues from operational projects into the Fund, revenues from maritime projects such as shipping-related charges at ports should be It is planned to be surrounded.

Guidelines for evaluating the project, its review mechanism, expenditure targets and expenditure schedule are developed.

The Fund has an institutional structure and coordination mechanisms between various nodal agencies to ensure robust implementation.

Devai Goel, founder and chief investment officer of Singapore-based Prudent Shipping Investments Ltd., said the proposed maritime development fund was a “good idea” covering shipping, ports and shipbuilding.

India’s shipping and shipbuilding industries are two of the “more distressed sectors where international financing is lacking,” Goel said.

“However, the management of funds specifically related to shipping should focus on equities to account for the cyclicality and volatility of shipping revenues and values. Manage lending criteria by assuming shipping is similar to infrastructure. is incorrect. Shipping is a different animal and is essentially the opposite of stable infrastructure. Maritime Development Funds should take an equity-based perspective on managing funds for shipping, rather than as fixed-rate products. “, Goel suggested.

The development of the global shipbuilding industry has always been supported by government subsidies, whether countries acknowledge it or not, he said.

Goel added that ports can also choose to have less focus on development funds as Indian ports are already preferred by international financial institutions.

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Despite the introduction of various incentives such as 100% foreign direct investment (FDI) in the shipping industry, tonnage tax regime, and the so-called Right of First Refusal (RoFR) for Indian cargo and coastal cargo reservations, the No noticeable increase was observed. Tonnage.

“Financing projects in the maritime sector, especially ship purchases, is a challenge mainly due to the lack of long-term capital at competitive interest rates,” said a government official who participated in the exercise. .

He said: “There are issues such as lack of expertise in existing domestic financial institutions, strict conditions for domestic lending to small and medium-sized shipping companies, and higher collateral requirements by domestic banks/financial institutions that limit lending in the maritime sector. ” he said.

Indian lenders often require real estate collateral to process shipping loans, according to executives at global shipping companies operating in India. “Indian financiers don’t understand that in a ship loan, the collateral is the ship itself,” he said.

Indian fleet owners benefit from higher interest rates compared to other countries (16% in Rupee terms, or LIBOR+600bps in USD terms compared to USD LIBOR+100bps for foreign shipping companies) and lower debt maturities ( 6-7 years). This means there is a lack of a level playing field as foreign shipping lines compete directly with Indian vessels for Indian export-import (EXIM) and coastal cargo.

“Indian ships have to be globally competitive,” said another shipping industry executive.

Currently, the cost of funds for ship financing is high and debt maturities are low compared to the useful life of the ship/barge (15-20 years for coastal and 25-30 years for inland). He pointed out that these factors are impacting the ability of Indian ships to compete as the cost of servicing loans is much higher compared to foreign ships.

Even though the shipping sector has a long service life of 15 to 25 years, it is not considered an “infrastructure” sector.

“Thus, banks and financial institutions are not working in capital-intensive industries such as ship financing and leasing,” the official said.

Furthermore, shipping is not recognized as an “infrastructure” sector and therefore does not fit the objectives of the National Infrastructure Development Bank.

Therefore, the maritime sector needs a specialized body with sector-specific experts who have the ability to evaluate projects and provide long-term financing at low cost, industry executives said, which will increase India’s tonnage and increase India’s tonnage. He pointed out that it will help promote India’s ‘Atmanirbhar Bharat’. Shipping Department.

He said the shipping sector has the potential to stimulate the economy and significantly contribute to job creation through forward and backward linkages.

“On the one hand, large parts of India’s maritime sector face constraints in accessing low-cost long-term capital and require significant financial resources to meet investment needs in line with the government’s stated goals.” Developing a vibrant maritime sector requires a comprehensive approach,” said the official.

According to him, the government has so far provided several sectoral loans such as PFC Ltd, REC Ltd, IRFC Ltd, HUDCO Ltd and NHB to meet the large and specialized financing needs of infrastructure sectors such as power, railways and railways. It is said that he had established a financial institution (FI). That led to balanced development.

Keeping in mind the key funding requirements of the maritime sector and the example of sector-specific financial institutions in India, a dedicated maritime sector-specific institution, the Maritime Development Fund, has been proposed, officials said.

The growth in tonnage of Indian flag cargoes has not kept pace with the growth in India’s trade needs. As a result, more than 93 per cent of international cargo originating from or destined for India and around 39 per cent of India’s total cargo (including coastal and offshore operations) are carried by foreign-flagged vessels, with an annual cargo volume of approximately US$2. It has become. 75 billion. The share of Indian flag vessels in India’s import and export trade has steadily declined from 40.7 per cent in 1987-88 to less than 7 per cent.

Moreover, India’s tonnage only takes part in global reciprocal trade.

Although the number of ships flying the Indian flag has increased over the years, the Indian fleet accounts for less than 1% of the global fleet compared to top maritime nations such as Greece, China and Singapore.

“India should have a healthy merchant fleet and policies that promote India’s tonnage growth, which promotes India’s economic and environmental interests by adding more ships to the Indian flag.” the government official added.