Pakistan shipping corporation loses interest in $40m loan

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14 Nov 2011

Pakistan_National_Shipping_Corporation_PNSCPakistan National Shipping Corporation (PNSC) has seemingly lost its interest in getting the $40m loan from Economic Cooperation Organisation (ECO) that they had applied for,

due to a recent dip in the international shipping market.
Though the Minister of Ports and Shipping and the Chairman PNSC have recently announced that they are planning to buy new vessels, yet the dip in the international shipping industry would not improve till the year 2013.
Official sources at the corporation told Profit that they are not planning to get the loan of $40m from ECO because of the recent decline in the international shipping industry, and buying a vessel at this time would be a bad decision. This is seemingly against the will of the minister and the chairman of the PNSC who recently announced their plan of purchasing new vessels.
Sources further informed that most shocking decision in this regard is that the administration of the corporation has decided to scrap two of it’s bulk carriers namely M.V. Sargodha and M.V Multan soon, which will leave the corporation with a fleet of 7 vessels, although they don’t have to buy new vessels.
After the scrap of these vessels they would go to buy new vessels with the help of loan, which means they would like to increase the liabilities on the corporation, sources added.
The need of new loan does not arise as the corporation already has $20m left with them from the previous loans they got for buying 6 vessels, sources reasoned. The previous administration took a $130m loan of total and bought 6 new vessels with $110m, so the current administration still has $20m.
In addition the carriers they are scrapping would give the PNSC around $6m, as each of them would be sold for $3m, sources added. A new vessel of the same capacity being scrapped is available for $15m.
It is pertinent to mention that Economic Cooperation Organisation (ECO) is an intergovernmental regional organisation established in 1985 by Iran, Pakistan and Turkey for the purpose of promoting economic, technical and cultural cooperation among the Member States.
It is also to be noted that PNSC has already been exposed to a variety of financial risks that include credit risk, market risk (including foreign exchange risk, cash flow, fair value interest rate risk, price risk) and liquidity risk. For example, according to annual report of the corporation, in the previous financial year out of the total financial assets, financial assets of the company that are subject to credit risk amounted to Rs3,548.898 million (2010: Rs3,133.362 million).
Similarly, the corporation has a high exposure to interest rate risk due to the financing obtained during the reported year, and if interest rates on borrowings had been 250 basis points higher/lower with all other variables held constant at the end of the last financial year, profit after taxation for the year would have been lower/higher by Rs 21.981 million (2010: Rs Nil).
Moreover, during the year, the corporation has obtained financing facility of Rs10,300 million (June 30, 2010: nil). The financing was obtained in the form of a syndicated term finance loan of Rs9,000 million and the remaining amount of Rs1,300 million in the form of Term Finance Certificates (TFCs) with a face value of Rs5,000 each by way of private placement.
The Corporation has also paid loan arrangement fee amounting to Rs106.662 million out of which Rs88.160 million (June 30, 2010: nil) was included in the amortised cost of the long term financing whereas the unamortised portion amounting to Rs18.502 million (June 30, 2010: nil) has been included in deposits and short-term prepayments.
Source: Pakistan Today

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