IOC ventures into shipping with VLCC acquisition plan

Indian Oil Corporation Ltd. (IOC) is set to make its foray into the shipping business by acquiring or leasing two second-hand very large crude carriers (VLCCs) through its newly established unit in Gujarat International Finance Technology City (GIFT City). The move is aimed at enhancing India’s energy security. 

A VLCC can carry some two million barrels of crude oil per trip. In the current market, a second-hand VLCC costs some $125 million. IOC plans to either purchase or lease these VLCCs for 8–10 years, and a finalized deal is anticipated within 6–8 months.

“In principle, it has been approved; ‘yes, we can get into this business,’ but when the specific proposal comes again, we have to go to the board,” stated a company source. The IOC insists on acquiring ships that are five years old or less.

The company’s focus on entering the shipping business is driven by energy security and hedging reasons. IOC is a significant charterer of oil tankers for crude transport, expending substantial funds annually on freight.

IOC is a big charterer of oil tankers to transport crude, spending millions of dollars in freight annually.

IOC Global Capital Management IFSC Ltd., a wholly-owned unit of IOC, recently closed its first refinancing deal and plans to raise loans to finance group companies. In its second stage, the unit is working on purchasing or leasing two VLCCs. Talks are ongoing with banks to structure a deal and overcome constraints in leasing ships for tenures exceeding five years.

Acknowledging the challenges in the new building market, the company prefers second-hand VLCCs for quicker entry into the business. The IOC is keeping options open regarding the flag of the VLCCs, considering both Indian and foreign flags. 

“We need to have the Indian flag for the ships; then only the Right of First Refusal (RoFR) will be available,” said the source. 

IOC is also exploring discussions with Indian companies for a potential joint venture in the shipping business, with the requirement to prefer another government company as a partner due to IOC’s state-owned status. 

The source revealed that, initially, the refiner also considered buying LNG ships to bring LNG sourced from suppliers, in which the seller is tasked with transporting the cargo. IOC felt that there was scope for hauling the LNG cargo using its own LNG ships.

However, to begin with, the focus will be on acquiring VLCCs.

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