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Indian shipyards poised for $4.5bn inflow

Last updated on: February 12, 2008 11:09 IST

Indian engineering and maritime groups have lined up an estimated Rs180bn ($4.5bn) to invest in new shipyards, opening up a front in the nation's competition with China to become a low-cost manufacturing centre.

The country's newest shipbuilder, Pipavav Shipyard, is to "cut steel" on its first vessel on Monday in its yard in Gujarat, western India , while across the industry there are plans to increase total capacity from 900,000 deadweight tonnes a year in 2007 to 2.5m dwt in five years. Driving this growth is a boom in global orders for new shipping, projected to reach nearly 450m dwt this year, nearly triple the level of five years ago.

This is stretching the ability of the leading producers in South Korea, China and Japan to meet new orders, creating opportunities for fledgling shipbuilders in countries such as India .

"We're still very embryonic but we couldn't have picked a better time to get into shipbuilding," said Ray Stewart, chief executive of Pipavav Shipyard. He said Pipavav already had enough orders to make it India 's biggest shipyard by volume.

India once used to be best-known in maritime circles for its crude ship-breaking industries. But in the past 10 years, the boom in global trade and government subsidies have spawned a nascent industry in shipbuilding.

Arvind Mahajan, KPMG's infrastructure and government national industry director, said groups including Pipavav, Bharati Shipyard, Hindustan Shipyard, ABG Shipyard, Larsen &Toubro and Shipping Corporation of India planned to invest Rs180bn in the industry, rising potentially to Rs400bn in five years and Rs2,000bn in 10 years.

Pipavav Shipyard, controlled by port operator SKIL Infrastructure, has $1.1bn of orders for 26 of its new 74,500 dwt Panamax Bulk Carriers, including from Golden Ocean Group, which is controlled by Oslo-based John Fredikson, the world's biggest ship owner.

Pipavav, which is seeking to hold an initial public offering in the coming months, includes Singapore's SembCorp Marine as a shareholder as well as private equity investors such as Blackstone, Merrill Lynch, ABN Amro and Deutsche Bank.

But the industry is facing hurdles, most importantly whether the Indian government will extend subsidies, which expired in August.

Analysts consider the 30 per cent subsidy essential to competing with the sectors of other countries, particularly China, which also offer generous tax breaks to producers.

The industry argues that, as a labour-intensive sector, shipbuilding meets the government's goals of creating more manufacturing jobs for the country's vast pool of underutilised workers.

Nikhil Gandhi, group chairman of SKIL Infrastructure, said the government had "responded encouragingly" to industry lobbying for the extension of the subsidy. "It might be renewed in a couple of months," he said.

Joe Leahy in Mumbai