CORPORATE INFORMATION
Mercator Limited (the “Company”) is a public limited Company registered in India under the provisions of the Companies Act, 2013. Its shares are listed on the Bombay Stock Exchange and the National Stock Exchange of India.
Note:
i Vessels, Land and Vehicle of Net book value of Rs. 845.82 Crore, Rs. 0.11 Crore and Rs. 0.04 Crore respectively has been charged/mortgaged to the lenders (Refer Note 2.15.)
ii Impairment testing for fleet
The Company has assessed ‘recoverable amount’ of each fleet by estimating their “value in use”, in terms of Ind-AS 36 “Impairment of Assets”. ‘Value in use’ is estimated by applying appropriate discount rate to projected net cash inflows having regard to existing long term contracts, expected tariff based on past trends and costs to operate the fleet which represents the management’s best estimate of the set of economic conditions that will exist over remaining useful life of each fleet. Based on the aforementioned assessment, it has been concluded that ‘recoverable amount’ of the fleet is higher than their respective carrying amount.
(b) All of the Company’s Investment Properties are held under freehold interest. Investment properties have restriction on title as they are pledged to secure long term borrowings of the Company (Refer to Note 2.15(a).
c) The Company has no contractual obligations to purchase, construct or develop investment properties or for repairs, maintenance and enhancements.
d) The fair value of the Company’s Investments properties as at March 31, 2018 & March 31, 2017 have been arrived at on the basis of valuation carried out as at March 31 2017 by an external, independent valuer registered with the authority which govern the valuers in India. The fair value measurement for all the investments properties has been categorised as Level 1/Level 2 fair value on the inputs to the valuation technique used.
(a) Rights, preferences, restrictions attached to Shares
The company has two class of shares, referred to as equity shares having a face value of Re.1/- and preference shares having a face value of Rs. 100/-. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividend in Indian rupees. The dividend whenever proposed by the Board of Directors is subject to the approval of the shareholders at the ensuing Annual General Meeting. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive any of the remaining assets of the company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.
(c) On 13th Nov 2017, the Company issued and allotted 3,25,67,262 Equity Shares of Re 1/- each at an issue price of Rs. 44.65 per share to raise Rs. 145.41 Crore by way of Qualified Institutional Placement (“QIP”) under Chapter VIII of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 and Section 42 of the Companies Act, 2013 read with Rule 14 of the Companies (Prospectus and Allotment of Securities Rules, 2014). Expenses related to the issue amounting to Rs. 12.31 Crore have been adjusted against Securities Premium Reserves. The net proceeds of the Qualified Institutional Placement has been utilised for repayment / prepayment of debt, working capital and general corporate purpose.
(d) The company during the preceding five years :
(i) Has not allotted shares pursuant to contracts without payment received in cash.
(ii) Has not issued shares by way of bonus shares.
(iii) Has not bought back any shares.
Out of above 52,623,401 no of shares (PY 21,680,951 no of shares) (56.84% (PY 23.49%) of promoter holding) has been pledged for loan taken by company amounting to Rs. 74.50 Crore (PY Rs. 36.00 Crore) as stated in Schedule 2.18 90,00,000 shares held by AHM Investments Private Limited has been pledged during the year for credit facility amounting to Rs. 36 Crore taken by wholly owned subsidiary.
B. Nature of Reserves Capital Reserve
Capital Reserve is utilised in accordance with provisions of the Companies Act, 2013.
Capital Redemption Reserve
Capital Redemption reserve (CRR) is being created as per Section 80 (d) of the Companies Act, 2013.
Security Premium
Securities Premium Reserve is used to record the premium on issue of securities of the Company. This reserve is created and utilised as per the provisions of the Companies Act, 2013.
Tonnage Reserve
These reserves are mandatory under the Income Tax Act, 1961 for companies who opt for the Tonnage Tax scheme prescribed under the said Act.
Debenture Redemption reserve
The Company is required to create a Debenture Redemption Reserve out of the profits which is available for redemption of debentures.
General Reserve
General Reserve represents appropriation of retained earnings and are available for distribution to Shareholders Foreign Currency Monetary Item Translation Difference Account
Foreign Currency Monetary Item Translation Difference Account represents amounts recognized on account of translation of long term foreign currency denominated borrowings not related to acquisition of depreciable assets. Amounts so recognized are amortised in the statement of profit and loss over remaining maturity of related borrowings.
Hedging reserve
This records the movement in the value of cash flow hedges Retained earnings
Retained earnings represents surplus/ accumulated earnings of the company less any transfers to General Reserve, Tonnage Tax Reserves, dividend or other distribution paid to Shareholders.
Dividend : In respect of year ended March 31, 2018, the Board of Directors of the Company has recommended dividend amounting to Rs. NIL (Previous Year Rs. 0.05 per share) on the fully paid up equity shares.
Deemed Equity : Represents deemed equity portion of FCCB as per Ind AS.
* Non Convertible Debentures are secured by first pari passu charge on specified vessels and first pari passu charge on the specified immovable property of the company. The same has further collaterally secured on pledge of shares of Mercator Petroleum Limited held by the company and its step down subsidiary. This will be redeemed at premium of 5% on every redemption installment or any pre payment as per terms of Debenture Trust Deed.
** Non Convertible Debentures were secured by first pari-passu charge on specified vessels and first pari passu charge on the specified immovable property of the company. These have been fully prepaid on March 27, 2018.
(b) Foreign Currency term loan comprise of following:
i. The foreign currency term loans from banks of Rs. 473.88 crore (PY Rs. 560.86 Crore) (gross) are secured by a first ranking or exclusive charge/ mortgage/ security interest in respect of specified vessels of the company as well as charge on cash flows of specified vessels
ii. The external commercial borrowings of Rs. 148.12 crore (PY Rs. 178.99 Crore) (gross) are secured by a first ranking or exclusive charge/ mortgage/ security interest in respect of specified vessels of the company as well as charge on cash flows of specified vessels.
(c) Foreign Currency Convertible Bonds (FCCB) of USD 16 Mn outstanding amounting to Rs. 96.28 Crore (PY Rs. 90.64 Crore) are convertible upon exercise of option during the period May 27, 2014 till April 27, 2019 at initial conversion price of Rs. 38.30 Per Share (at a fixed rate of exchange on conversion of Rs. 58.5740 per 1 USD). The maturity date of FCCB is May 27, 2019 which is listed on Singapore Stock Exchange. This is fully unsecured in nature.
1.1 Segment Reporting
In accordance with Accounting standard Ind AS 108 ‘Operating Segment’, segment information has been given in the consolidated Ind AS financial statements of Mercator Limited, and therefore, no separate disclosure on segment information is given in the Standalone financial statements.
1.2 Disclosure as required by Indian Accounting Standard (Ind AS) 19 on Employee Benefits
(A) Defined Contribution Plans:
The Company has recognised the following amounts in the Statement of Profit and Loss for the year
(B) Defined Benefit Plans and Other Long Term Benefits:
Valuations in respect of Gratuity and Leave Encashment have been carried out by an independent actuary as at the Balance Sheet date under the Projected Unit Credit method, based on the following assumptions:
1.3 Capital and Other Commitments
Estimated amount of contracts remaining to be executed on capital accounts and not provided for (net of advances) as at March 31, 2018 Rs. NIL (Previous Year NIL).
(i) It is not practical for the Company to estimate the timings of cash outflows, if any, in respect of the above pending resolution of the respective proceedings as it is determinable only on receipt of judgements/decisions pending with various forums / authorities.
(i) The Company’s pending litigations comprise of claims pertaining to proceedings pending with Income Tax, Service Tax and other authorities. The Company has reviewed all its pending litigations and proceedings and has adequately provided for where provisions were required and disclosed as contingent liabilities where applicable, in its financial statements. The Company does not expect the outcome of these proceedings to have a materially adverse effect on its financial results.
1.4 Exceptional item as at March 31, 2018 ‘NIL(Previous Year Rs. 9.16 cr) relates to termination of cash flow hedge contracts.
1.5 Disclosure required under Section 22 of the Micro, Small and Medium Enterprises Development Act, 2006
Information related to Micro and Small Enterprises, as per the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Development Act), are given below. The information given below have been determined to the extent such enterprises have been identified on the basis of information available with the Company:
1.6 Tonnage Tax Reserve
In terms of section 115VT of the Income Tax Act, 1961, the Company is required to transfer a minimum of 20% of book profits from the tonnage tax activities in tonnage tax reserve which are to be utilised for acquiring new ships within 8 years of such transfer. The Company has transferred Rs. NIL (Previous Year Rs. NIL) to Tonnage Tax Reserve as company has incurred a book loss of Rs. 142.84 crore (Previous Year Rs. 29.55 crore).During the year, the company has transferred the utilised Tonnage Tax Reserve to General Reserve, which had been utilised for the purchase of dredgers in the earlier years.
* Note: In case of Indian shipping companies, tax expense is computed based on the gross tonnage of the vessels for the income subject to tonnage tax. In case of income not subject to tonnage tax, the same is calculated based on the taxable profits calculated in accordance with the local tax laws.
1.7 Corporate Social Responsibility (CSR)
Gross amount required to be spent by the company as per section 135 of the Companies Act 2013, during the year Rs. NIL.
1.8 Financial Risk Management Objectives and Policies
The Company’s financial risk management is an integral part of how to plan and execute its business strategies. The Company’s financial risk management policy is set by the Risk Management committee.
The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates, equity prices and other market changes that affect market risk sensitive instruments. Market risk is attributable to all market risk sensitive financial instruments including investments and deposits, foreign currency receivables and Loans and borrowings.
The Company manages market risk through Risk Management committee, which evaluates and exercises independent control over the entire process of market risk management. The committee recommends risk management objectives and policies, which are approved by Risk Management and Board.
(a) Market Risk
i) Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of the financial instruments will fluctuate because of changes in interest rates.
The Company is exposed to interest rate risk as it borrows funds at floating interest rates. The interest rate risk is managed by monitoring the Company’s level of borrowings periodically and structuring its borrowings on varying maturities and interest rate terms.
The sensitivity analysis below has been determined based on the exposure to interest rates at the balance sheet date. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at the balance sheet date was outstanding for the whole year.
A 50 basis point increase or decrease is used when reporting interest rate risk and represents management’s assessment of the reasonably possible change in interest rates.
If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Company’s loss for the year ended March 31, 2018 would increase/decrease by Rs. 3.11 crore (Previous Year Rs. 3.70 crore ). This is mainly attributable to the Company’s exposure to interest rates on its variable rate borrowings.
ii) Maritime Risk
The operations of the Company may be exposed to piracy, war, sabotage and terrorism risk at sea which could potentially disrupt the operations of the Company. Also, the Company’s vessels are susceptible to arrests by maritime claimants which could result in significant loss for the Company. In times of emergency or wars, the Government could demand the Company’s vessels without adequate compensation.
iii) Price Risk
The Company is engaged in the business of commodity transportation of crude oil, petroleum products, coal, iron-ore etc which involves a high level of dependence on the production of oil and gas. Thus, demand in these sectors will have a direct impact on the business of the Company. A decline in the demand for oil, coal or iron etc will adversely affect the business of the company. Thus, often, the factors affecting the supply and demand for the vessel are beyond the control of the Company as the nature, timing and degree of changes in the industry conditions cannot be foreseen and are unpredictable.
iv) Other price risk:
The Company is not exposed to any significant equity price risks arising from equity investments, as on March 31, 2018. Equity investments are held for strategic rather than trading purposes. The Company does not actively trade in these investments.
Equity price sensitivity analysis:
There is no exposure to equity price risks as at the reporting date or as at the previous reporting date.
v) Foreign currency risk
Foreign currency risk mainly arises from transactions undertaken by an operating unit denominated in currencies other than its functional currency. Exposure to foreign currency risk is mitigated by natural hedges of matching revenues and costs.
Since the majority of the revenues of the Company are denominated in US dollars, there is a translation risk as the Company has to report its financial performance in INR. The carrying amounts of the Company’s financial assets and financial liabilities denominated in foreign currencies at the reporting date in INR are as follows:
*Borrowings includes USD Loan of Rs. 323.12 Crore ( Previous year Rs. 395.84 crore) where exchange fluctuation impact on revaluation are capitalised as per Ind AS 101 to Cost of Vessel.
Sensitivity Analysis:
A 5% strengthening / weakening of Indian Rupee against key currencies to which the Company is exposed (net of hedge, if any), with all other variables being held constant, would have led to approximately a gain / loss of Rs. 9.1 crore (Previous Year : Rs. 10.10 crore).
(b) Credit Risk
Credit risk arises from the possibility that the counter party may not be able to settle their obligations as agreed. To manage this, the Company periodically assesses the financial reliability of customers and other counter parties, taking into account the financial condition, current economic trends and analysis of historical bad debts and ageing of financial assets. Individual risk limits are set and periodically reviewed on the basis of such information.
Financial assets are written off when where there are no reasonable expectations of recovery, such as a debtor failing to engage in a repayment plan with the Company. Where loans or receivables have been written off, the Company continues to engage in enforcement activity to attempt to recover the receivable due. When such recoveries are made, these are then recognized as income in the statement of profit and loss.
The Company measures the expected credit loss of trade receivables based on historical trend, industry practices and the business environment in which the entity operates.
Financial assets are considered to be of good quality and there is no significant increase in credit risk
(c) Liquidity Risk
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due and to close out market positions. Due to the dynamic nature of the underlying businesses, Company treasury maintains flexibility in funding by maintaining availability under committed credit lines. Management monitors rolling forecasts of the Company’s liquidity position (comprising the undrawn borrowing facilities below) and cash and cash equivalents on the basis of expected cash flows.
The following tables detail the Company’s remaining contractual maturity for its non derivative financial liabilities, based on contractually agreed discounted cash flows:
1.9 Capital Management
For the purpose of Company’s capital management, capital includes issued capital and all other equity reserves attributable to the equity shareholders of the Company. The primary objective of the Company when managing capital is to safeguard its ability to continue as a going concern and to maintain an optimal capital structure so as to maximise shareholder value.
As at 31st March 2018, the Company has only one class of equity shares and has debt, consequent to such capital structure, there are no externally imposed capital requirements. In order to maintain or achieve an optimal capital structure, the Company allocates its capital for distribution of dividend or re-investment into business based on its long term financial plans.
1.10 Having regard to the ongoing Income tax disputes and assessment proceedings of various years as well as pending reconciliation of the Income Tax assets the management has made an estimated provision of Rs. 40.17 crore in the financial statements for short provision of tax in the earlier years.
1.11 The Board of Directors at its meeting held on February 14, 2018, approved the Scheme of Arrangement between Mercator Limited (“Company” or “Demerged Company”) and Mercator Dredging Private Limited (“MDPL” or “Resulting Company”) and their respective shareholders (“the Scheme”) u/s 230 to 232 of the Companies Act 2013 (“the Act”) and other applicable provisions of the Act. Pursuant to the said scheme of dredging business of the Company, is proposed to be demerged into MDPL, a wholly owned subsidiary of the Company.
1.12 As disclosed in our announcement dated 7th December 2017 for Disclosure under Regulation 30 of SEBI (Listing and Disclosure Requirements), Regulations, 2015 as amended (“Listing Regulations”), the senior management of our step down subsidiaries in Indonesia (the “Indonesian Entities”) has been changed by the Company, following which certain proceedings have been filed by the Company in Singapore and Indonesia against some of the erstwhile senior management of the Indonesian Entities who have in turn initiated various proceedings against some of our step down subsidiaries and some of the company’s executives. This change also led to disruption in operations for approximately four months and Indonesian entities had incurred substantial costs for its fixed contractual commitment, salary cost, professional fees, legal fees, consumable, maintenance and other overheads during this period. The Indonesian subsidiary has resumed operations w.e.f. January 15, 2018 and management is of the view that the above disruption will have no substantial impact on the future operations of these entities or the investment value recorded in the company’s books.
1.13 During the year the Company has sold Dry Bulk Carrier “M.T. Sri Prem Poorva”, built in 1994, tanker “M.T. Harsha Prem” built in 1993. Also, the Company has entered into agreement of sale dated March 19, 2018 for sale of M. V. Vrinda built in 1997 and deliver the vessel on April 2, 2018, which has been classified as “Non - Current Asset Held for Sale” as at March 31, 2018. On such transactions, the Company has accounted for aggregate loss of Rs. 65.04 crore on sale and impairment of Asset classified as Held for Sale, classified under the head of “other expenses”.
1.14 The Company does not have any long term contracts including derivative contracts as at March 31, 2018 wherein the company is required to make provision towards any foreseeable losses.
1.15 Financial Instruments
The significant accounting policies, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instruments are disclosed in Note 1 to the financial statements.
(a) The carrying value of financial instruments by categories is as follows -
Carrying amounts of trade receivables, cash and cash equivalents and trade payables as at March 31, 2018 and March 31, 2017 approximate the fair values because of their short term nature. Difference between carrying amounts and fair values of other bank balances, borrowings, and other financial liabilities subsequently measured at amortised cost is not significant in each of the years presented.
(b) Fair Value Hierarchy:
The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable and consists of the following three levels:
- Level 1 - Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities
- Level 2 - Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
- Level 3 - Inputs are not based on observable market data (unobservable inputs). Fair values are determined in whole or in part using a valuation model based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data.
All other financial instruments are classified as level 3.
The fair value of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values:
a) The fair value of loans from banks and other financial indebtedness as well as other non current financial liabilities is estimated by discounting future cash flows using rates currently available for debt or similar terms and remaining maturities.
b) Derivative instruments have been fair valued on the reporting date on the basis of quotes provided by the third party qualified valuer / market participants.
1.16 Recent Indian Accounting Standards (Ind AS ) - Issued but not yet effective
Ministry of Corporate Affairs (“MCA”) through Companies (Indian Accounting Standards) Amendment Rules, 2018 has notified the following new and amendments to Ind ASs which the Company has not applied as they are effective for annual periods beginning on or after April 1, 2018:
Ind AS 115 Revenue from Contracts with Customers Ind AS 21 The Effect of Changes in Foreign Exchange Rates Ind AS 115 - Revenue from Contracts with Customers
Ind AS 115 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Ind AS 115 will supersede the current revenue recognition standard Ind AS 18 - Revenue, Ind AS 11 - Construction Contracts when it becomes effective. The core principle of Ind AS 115 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the standard introduces a 5-step approach to revenue recognition:
Step 1: Identify the contract(s) with a customer Step 2: Identify the performance obligation in contract Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
Under Ind AS 115, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. The Company is evaluating possible impact of Ind AS 115 and will make necessary adjustments in FY-2018-19 based on the preliminary evaluation the Company does not expect the impact of the adoption of the new standard to be material on its retained earnings and to its net income on an ongoing basis.
Ind AS 21 - The Effect of Changes in Foreign Exchange Rates
The amendment clarifies on the accounting of transactions that include the receipt or payment of advance consideration in a foreign currency. The appendix explains that the date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability. If there are multiple payments or receipts in advance, a date of transaction is established for each payment or receipt. The Company is evaluating the impact of this amendment on its financial statements.”
1.17 Subsequent Events
There are no significant subsequent events that would require adjustments or disclosures in the financial statements.
1.18 Previous year’s figures have been regrouped / restated wherever necessary to conform to current year’s classification.
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