Sept. 22 (Bloomberg) -- Mercator Lines Ltd., the only Indian shipping company to list shares in Singapore, plans to more than double its fleet of dredgers to guard against rate fluctuations in commodity-shipping operations.
Mercator will increase the number of dredgers in its fleet to 10 in the next three years from the current four, Chairman H.K. Mittal said in an interview in Mumbai on Sept. 19. The company also plans to add more so-called jack up rigs that aid oil exploration, Mittal said.
Indian shipping lines like Mercator and Varun Shipping Co. are diversifying their fleet as rates for hauling commodities decline. On Sept. 19, the Baltic Dry Index, a measure of shipping costs for commodities, was 58 percent below the record the index reached May 20.
"Since the world economy is not doing so well, there is a slowdown in global trade, and this will have a direct impact on shipping,'' said Prachet Sheth, an analyst at A.C. Choksi Share Brokers Pvt., in Mumbai. "Mercator is trying to hedge against this,'' he said. Sheth has an "accumulate'' rating on Mercator.
Mercator Lines rose as much as 6.1 percent to 67.40 rupees in Mumbai and changed hands at 66 rupees at 2:40 p.m. in the city. The stock has declined 59 percent so far this year.
The company was unchanged at 27 Singapore cents in the city- state.
Mittal said Mercator would place orders for four dredgers in the next two months with companies in Europe. By March 2010, Mercator plans total capital expenditure of $700 million, and as much as 70 percent of this amount would be raised through debt.
Cargo Rates
Mercator earns more than 80 percent of sales from hauling dry cargo through long-term charters, ranging from one year to four years. The average yield on dry cargo is $35,000 a day for the company.
Mercator Lines Singapore Ltd., the unit listed in the city- state, won a $320 million contract from Tata Power Co. in June, after renegotiating an existing contract with the utility. The new agreement boosted revenue per vessel to $33,000 a day from $24,000 previously. The four-year contract employs five ships.
The company also invested in coalmines in Mozambique and Indonesia as part of the plan to diversify. It expects to earn as much as 60 percent of its profits from offshore and dredging operations and from coal mining in future, Mittal said.
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