Hellenicshippingnews.com Local shipbuilders told to pick 13% stake in GAIL LNG carriers

Hellenicshippingnews.com Local shipbuilders told to pick 13% stake in GAIL LNG carriers

Local shipbuilders, including state-run Cochin Shipyard Ltd, L&T Shipbuilding Ltd, a unit of Larsen and Toubro Ltd (L&T), and Pipavav Defence and Offshore Engineering Ltd, have been asked to take equity stakes in each of the three new carriers they are hoping to build for use by GAIL (India) Ltd to ship liquefied natural gas from the US beginning December 2017.

Local shipbuilders winning the contract to build the three LNG tankers will have to pick up at least a 13% stake in each of these tankers, at least two people briefed on the government decision said, asking not to be named.

In today’s market, an LNG carrier costs more than $200 million to build from scratch.
Shipbuilders buying equity in the ships they build for fleet owners’ is a rare phenomenon in the global shipping industry.

GAIL India has communicated the decision to local yards that have finalized technical collaborations with overseas shipbuilders experienced in constructing LNG tankers in order to become eligible to bid for the GAIL India tender.

The move is part of a government plan to raise equity stakes held by Indian entities to 49% from the earlier 36% in each of the three new LNG carriers that are to be built locally for use by state-run natural gas firm GAIL India for transporting gas from the US, in a bid to lessen the risk for global fleet owners owning the balance 51% stake while ordering the new ships in India.

An earlier plan involved state-owned firms taking a combined 36% stake in each of the three carriers.

GAIL India and Shipping Corp. of India Ltd (SCI) have signed an agreement last year wherein the state-owned shipping company has the step-in right to take at least a 26% stake in each of the nine LNG carriers hired by GAIL India.

GAIL India, separately, has the option of taking a 10% stake in each of the LNG carriers it hires.

The requirement for Indian shipyards to hold a 13% stake in each of the three locally-built LNG carriers will form part of the terms of a global tender to be issued by GAIL India in the next few days, a Mumbai-based shipbuilding industry executive, one of the two persons mentioned earlier, briefed on the plan, said.

Cochin Shipyard, L&T Shipbuilding and Pipavav Defence declined to comment. A GAIL India executive, the second person cited earlier, confirmed the development, but declined to be named.

GAIL India will not order the nine ships directly at shipyards—both overseas and Indian.
It plans to time charter, or hire, the carriers for 18 years from fleet owners who will have to construct three of the nine ships in India as part of the Make in India initiative of Prime Minister Narendra Modi.

This is the second intervention by the government—the first was to issue a directive to a reluctant GAIL India to get three of the nine LNG carriers built locally—to help Indian yards diversify into this lucrative business.

“A higher equity stake by Indian entities would act as a comfort for global fleet owners and incentivize them to build the three carriers in India. This will ensure the success of the make in India plan,” a Malaysia-based shipping consultant said.

Cochin Shipyard and L&T Shipbuilding, have signed separate technical collaboration agreements with South Korea’s Samsung Heavy Industries Ltd and Hyundai Heavy Industries Co. Ltd, respectively.

Pipavav Defence has tied up with Daewoo Shipbuilding and Marine Engineering Co. Ltd, also South Korean, to secure technology for constructing the LNG tankers.
The technical collaborations were necessary because none of the Indian yards have built LNG carriers before.


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