Varun sees FY09 rev boost on offshore thrust

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

29 Aug 2008

Oil and gas garrier Varun Shipping Co Ltd has entered the South African market to provide offshore oil-field services and is eyeing the region "more seriously", Managing Director Yudhishthir Khatau told Reuters.
Varun has just contracted one of its large anchor handling tugs in Mozambique to South Africa's Sassol for 4-6 months, he said

without divulging the terms of the contract.
It has deployed one of its anchor handling-cum-supply vessels in the North Sea and is looking to expand its presence there, Khatau said in an interview late on Thursday.
"The North Sea market is doing extremely well. The company will focus on North Sea, Africa and India for offshore activities. This market continues to be very strong," he said.
Freight rates in the offshore segment have been very bouyant due to higher crude oil prices, which hit new life highs in 2008, crossing $147 a barrel on demand growth.
Varun will invest $300 million to buy at least four vessels in the offshore segment this year, Khatau had said in May. It has the country's largest anchor handling and towing vessel, used for deep sea oil exploration.
The company sees about 25 percent revenue from the offshore segment in 2008/09 compared with 19 percent in 2007/08, Khatau said. "This is excluding the new ships we may buy for $300 million this year," he added.
"The returns on offshore at this point in time are higher than what we are seeing currently in the tanker market. So, in terms of returns on capital employed we are getting higher margin," he said.
On large anchor handling tugs, the return on equity is in excess of 20 percent, Khatau said.
The company, which has a fleet of 20 vessels, will sell the only single-hull tanker it has this year as part of a global mandate to phase out all such tankers by 2010 as they're considered dangerous during accidents and oil spillage.
It will also sell an ageing gas carrier this year.
Varun is buying modern second-hand vessels at higher cost to ensure immediate delivery. "You are paying a price for early delivery. There's a possibility to earn in the short-term so there's a premium," Khatau said.
Due to an unprecedented leap in demand for offshore vessels and rigs, shipping companies are compelled to buy from the second-hand market at a premium as shipbuilders globally are booked till 2011, he pointed out.
The shipping industry is largely insulated against rising interest rates and a global slowdown as export-import trade, offshore oil exploration and product distribution segments are still seeing firm demand.
Varun has raised funds overseas where interest rates are softening and borrowing has not been a problem so far due to a comfortable debt-equity ratio of 2.3:1, Khatau said.
"At this stage, I'm not seeing the effect (of slowdown) as it stands today. Definetely, we see the impact of higher (local) interest rates. Interest margins have gone up."
Shares in the company were trading 0.6 percent higher at 67.20 rupees in a firm Mumbai market.

Source: Reuters