Credit rating agency, ICRA has revised the issuer rating of Shipping Corporation? of India (SCI) from IrAAA to IrAA+. The rating is only an opinion on the general credit worthiness of the rated entity and not specific to any particular debt instrument.

The rating revision reflects SCI`s weakened financial performance
following deteriorating profitability in the container ships segment,
continuous decline in the charter rates of its crude oil tankers, and
modest erosion in the market value of new builds.

ICRA notes that the outlook for its bulk (tankers & dry bulk) and
container ships segment remains weak in the near term, though it has
shown some signs of improvement compared to the second half of FY2009.

The rating, however, continue to reflect the company`s long track
record in shipping business with well established relationships with
major PSUs, its strong competitive position in the domestic market
backed by a sizeable and diversified fleet and the strengths arising
from a significant Government of India (GoI) ownership.

The rating is also supported by its currently strong financial risk
profile characterized by low gearing levels, sizeable liquid
investments and a significant proportion of unencumbered vessels which
provide additional financial flexibility, considering the easy
tradability of vessels.

SCI also has a conservative policy of buying new/second hand ships and
operating them over its lifecycle, which is positive from the credit
perspective, as it minimizes the risk of mistiming involved in asset
play strategy.

ICRA notes that the shipping industry is inherently cyclical, with the
charter rates witnessing a sharp downturn in the latter half of 2008,
due to weakening of demand for several reasons.

Although a gradual recovery of the world economy is expected to
stimulate demand for shipping, charter rates are likely to remain
subdued compared to 2007-08 levels due to the large fleet addition
expected in the medium term.

Nonetheless, ICRA expects SCI to be relatively less affected by the
shipping market downturn in the near term because of a fair share of
revenues from time charter and contract of affreightment (CoA)
contracts, which are relatively stable vis-vis spot charter deployment,
in its tankers & dry bulk carrier segments.

Although most of these contracts have been renegotiated at lower rates
on their renewal, they lend the benefit of vessel deployment and
revenue visibility to a major portion of SCI`s fleet. Besides the
company derives a portion of its revenues from OSVs and managed fleet
businesses, which have not been impacted by the downturn.

ICRA also notes that SCI has been in the midst of a fleet restructuring
plan and has orders outstanding for 31 vessels which will be inducted
during the period 2009-2013.

The induction of dry bulk carriers (10 nos), is expected only around
2012-13, which could partially insulate it from the current
sluggishness in the dry bulk market. The vessels to be inducted during
2009-12 are primarily product tankers and AHTS, the charter rates of
which are still above their break-even levels, ensuring profitable
operations even during the current down cycle.

Shares of the company gained Rs 2.35, or 1.6%, to settle at Rs 149.15.
The total volume of shares traded was 191,630 at the BSE (Friday).

Source: IRIS

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