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India's L****n to Spend $400 Million on Ship Building

India's biggest engineering company, will invest $400 million in its ship-building unit, seeking to gain market share for smaller vessels as South Korean yards rush to complete record orders.

L****n will select a deep-water yard this year and aims to start building container ships weighing as much as 25,000 tons in three years, Chief Executive Officer A.M. Naik said in an interview. The Mumbai-based company will spend half the funds in three years and plans to set up a separate company to manage the business, he said.

Record order books at Hyundai Heavy Industries Co., the world's largest shipbuilder, and other South Korean groups may help Indian companies win more business as owners turn elsewhere to get timely delivery. ABG Shipyard Ltd. and Bharati Shipyard Ltd., India's two largest private shipbuilders, are expanding yards aiming to win orders for smaller craft.

``There is a real opportunity for Indian companies,'' said Navin Thakur, a research analyst at the Gurgaon, India-based unit of Drewry Shipping Consultants Ltd. ``For now, they can aim for the low end of the market trying to take advantage of the overflowing Korean yards. If they do it well now, they can have aspirations like China to grow in the future.''

Shipowners have spent about $207 billion in the past three years on new vessels, including container carriers and tankers, the same amount as in the preceding decade, according to Clarkson Plc, the world's biggest shipbroker.

Hyundai Heavy and other South Korean shipyards won 43.4 percent of orders to build new ships at the end of the first half, followed by China at 24.4 percent, according to the Korea Shipbulders Association, citing Clarkson. Japan is the third- biggest shipbuilder with 12.8 percent, followed by Europe.

L****n, which also builds airports and construction equipment and this year bid with Hutchison Whampoa Ltd. for a port project, has set up a team that's studying locations for the new yards, Naik said.

``Ship building is our intent, we have started small,'' Naik, said in an interview on Sept. 8. ``We'll have to put up with competition from the Koreans and Chinese.''

The $400 million investment the company proposes on ship building is 1.34 times last year's net income of L****n & Toubro. L****n earned 13.2 billion rupees in the year ended March 31, on sales of 165 billion rupees.

Shares of L****n & Toubro fell 0.3 percent to 2,455.1 rupees on the Bombay Stock Exchange yesterday. The stock has gained 33 percent this year.

L****n & Toubro won its first contract to build ships in May with a 4.4 billion rupee ($95 million) order from Zadeko Ship Management CV of the Netherlands.

L****n will build ships that weigh 8,250 tons and can carry 830 twenty-foot standard containers, according to a May 2 statement. These ships are being built at the company's Hazira unit, in the western state of Gujarat. Hazira doesn't have deep- water facilities for constructing larger craft, Naik said.

India's 23 shipyards, nine of which are state-owned, have a combined capacity of 110,000 dead weight tons, according to the New Delhi-based shipping ministry. The government plans to spend 72 billion rupees to set up two yards, according to the National Maritime Development Programme.

Winning Orders

ABG Shipyard and Bharati Shipyard, the nation's two biggest shipbuilders outside government control, are expanding capacity and winning orders for small vessels from companies in the Netherlands, Cyprus and Norway.

South Korean shipyards have a record order backlog of 40 million compensated gross tons, or a measure of building time and human resources used per ton, at the end of the first half, which will keep the shipbuilders busy for more than three years.

The International Monetary Fund estimates global trade will rise 7.6 percent this year, spurring demand for river barges to ocean-going container ships.

``Can we make sophisticated ships? Answer, at the moment, is no,'' Naik said. ``But can it be learnt and applied quickly enough, by which I mean in a five-year horizon, the answer is yes.''

Indian companies will still face difficulties winning customers who have traditionally relied on South Korea and Japan while ordering ships, according to Sverre Bjorn Svenning, head of research at Oslo, Norway-based shipbroker Fearnleys AS.

``It's an uphill struggle for newcomers,'' Svenning said in a phone interview from Oslo. ``India will have to compete in a market where buyers are very conservative and it took China many years to break into that market.''

India's government said last year it'll encourage ship building and ship repair facilities in the country as almost 90 percent of the south Asian nation's overseas trade is carried out through sea.

Just as an afterthought of this subject, I was amazed to read yesterday that India are drilling for Cuba.! Honest.

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