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Notes to Accounts of Essar Shipping Ltd.

Mar 31, 2015

1 CORPORATE INFORMATION

Essar Shipping Limited was incorporated in September 2010 and is listed on Bombay Stock Exchange and National Stock Exchange in India. The Company is mainly engaged in fleet operating and chartering and operates in international and coastal voyages. The Company has also directly and/ or through its subsidiaries invested in diverse business verticals viz. Fleet operating and chartering (tankers and dry bulkers), oilfields services (land rigs and semi- submersible rig) and logistics services (trucks, trailers and tippers). The place of business of the Company is in Mumbai, India.

(A) Terms of / rights attached to equity shares

The Company has only one class of equity shares having par value of Rs. 10/- per share. Each holder of the equity share is entitled to one vote per share. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive 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.

(B) Shares reserved for issue under options

(i) The Company has reserved issuance of 36,65,270 equity shares of Rs. 10 each for offering to eligible employees of the Company and its subsidiaries under Employee Stock Options Scheme (ESOS). Refer note 34 for details.

(ii) 2,400 Foreign Currency Convertible Bonds (FCCB) are convertible into 122,852,787 equity shares, at the option of the holders, (previous year 122,852,787 equity shares) of Rs. 10/- each Refer foot note (i) (f) to note 5 for details.

i) Repayment terms:

a) Secured debentures: 2,000 debentures issued on 25th March 2010 and 5,000 debentures issued on 22nd June 2009 are redeemable at the expiry of 10 years with put and call option exercisable after five years from their respective dates of issue. The Company has received notice from the debenture holder invoking the put option. The Company is in discussion with the debenture holder to waive the option and based on the said discussion, the management is reasonably confident that the debenture holder will waive the option and the debentures would be redeemed at the expiry of ten years from the date of their issue. However, the debentures have been classified as current liabilities till such waiver is received. (refer note 35).

b) Secured debentures: 205 debentures issued on 01st February 2013 are redeemable at the expiry of 10 years from the date of issue and the holder of the debentures have the option to call after 5 years from the date of issue. 40 debentures issued on 12th October 2012, 50 debentures issued on 28th June 2012 and 100 debentures issued on 22nd June 2012 are redeemable at the expiry of 5 years from their respective date of issue.

c) Secured Rupee term loans from banks and others: Repayable in quarterly/monthly installments starting from October, 2010 to December, 2019.

d) Secured foreign currency term loans from banks : Repayable in quarterly installments starting from March, 2006 to July, 2019

e) Finance lease obligation: Repayable in monthly installments starting from October, 2008 to September, 2018.

f) Foreign currency convertible bonds: FCCBs of US$ 111,428,571 (Series B) due on 24th August 2017 and US$ 128,571,429 (Series A) due on 24th August 2015 carry interest @5% per annum payable semi annually. The FCCBs are convertible into 122,852,787 fully-paid equity shares of Rs. 10 each of the Company, any time upto the date of maturity, at the option of the FCCB holders at conversion price of Rs. 91.70 per share at a predetermined exchange rate of Rs. 46.94 per US$. The FCCBs, if not converted, till the maturity date will be redeemed at par.

ii) The classification of loans between current liabilities and non-current liabilities continues based on repayment schedule under respective agreements as no loans have been recalled due to non compliance of conditions under any of the loan agreements.

2. Contingent liabilities (to the extent not provided for)

Rs. in Crore

Particulars As at As at 31st March, 2015 31st March, 2014

a With respect to pending litigations

i) Guarantee given by a bank against disputed custom duty demand of Rs. 30.00 30.00 27.40 crore by DGFT

ii) Income tax demand -appeal filed by the Income tax department in the 7.29 7.29 High court of Bombay against the order of Appellate Tribunal in favour of the Company

b Others

i) Corporate guarantees on behalf of subsidiaries # 592.03 572.48

ii) Bills discounted with bank 48.85 18.00

# Guarantees have been given for business purposes.

3. Business segment and geographical segment

a) Business segment

The Company has only one reportable primary business segment of fleet operating and chartering.

b) Geographical segment

The Company's fleet operations are managed on a worldwide basis from India. The revenue from operations are identified as geographical segment based on location of customers:

4. Earnings per share:

The calculation of the basic and diluted earnings per share is based on the following data:

5. Derivative instruments and unhedged foreign currency exposure :

A) Derivative contracts outstanding as at the Balance Sheet are as follows:

During the year, the Company extended hedge accounting principles of Accounting Standard (AS) 30 "Financial Instruments : Recognition and Measurement" for accounting of certain forward foreign exchange contracts to hedge the exchange risk pertaining to highly forecasted transactions. Accordingly mark to market losses of Rs.12.88 crore has been carried over to cash flow hedge reserve as of 31st March, 2015 for Currency Swap hedging.

The Company had also entered in to a forward contract to cover its foreign currency exposure, the premium on the contract Rs. 3.11 crore (previous year nil) has been charged during the year. There is no forward contract outstanding as on 31st March, 2015.

6. Employee benefits :

The Company has classified the various benefits provided to employees (office staff, offshore crew members and officers) as under:

I. Defined contribution plans:

The Company has recognised the following amounts in the Statement of Profit and Loss during the year under 'Contribution to staff provident and other funds. (refer note 20)

(G) Actuarial assumptions

Actuarial valuations were done in respect of the aforesaid defined benefit plans based on the following assumptions:

i) General assumptions:

ii) Mortality rates considered are as per the published rates in the India Assured Lives Mortality (2006-08) (modified) ult.

iii) Leave policy:

a) There is no balance of sick leave as at valuation date ( till previous year the Sick leave balance as at the valuation date was available for adjustment against future sick leave and the balance not available for encashment).

b) Leave balance as at the valuation date and each subsequent year following the valuation date to the extent not availed by the employee is available for encashment on separation from the Company up to a maximum of 120 days.

iv) The expected rate of return on plan assets is based on market expectation, at the beginning of the year, for returns over entire life of the related obligation.

v) The assumption of future salary increases, considered in actuarial valuation, takes account of inflation, seniority, promotion, supply and demand and other relevant factors.

vi) Liability on account of long term absences has been actuarially valued as per Projected Unit Credit Method.

vii) Short term compensated absences have been provided on actual basis.

7. Related party relationships, transactions and balances:

a) Holding companies :

i) Essar Global Fund Limited, Cayman Islands, ultimate holding company

ii) Essar Shipping & Logistics Limited, Cyprus, intermediate holding company (immediate holding company till 27th March 2015)

iii) Essar Ports & Shipping Mauritius Limited , Mauritius, intermediate holding company (from 27th March 2015)

iv) Essar Ports & Shipping HoldCo Limited, Mauritius, intermediate holding company (from 27th March 2015)

v) Essar Ports & Shipping Jersey Ltd, Jersey, intermediate holding company (from 27th March 2015)

vi) Essar Ports and Shipping Limited, Mauritius, immediate holding company (from 27th March 2015)

b) Subsidiaries:

i) Essar Logistics Limited, India

ii) Energy Transportation International Limited, Bermuda

iii) Energy II Limited, Bermuda

iv) Essar Oilfields Services Limited, Mauritius

v) Essar Oilfield Services India Limited, India

c) Associates

(i) Varada Drilling One Pte. Limited

(ii) Varada Drilling Two Pte. Limited

d) Key management personnel

i) Mr. A. R. Ramakrishnan (till 31st March, 2015)

ii) Mr. Anoop Kumar Sharma

e) Fellow subsidiaries where there have been transactions:

(i) Aegis Limited

(ii) Essar Bulk Terminal Limited

(iii) Essar Oil Limited

(iv) Essar Ports Limited

(v) Essar Projects India Limited

(vi) Essar Shipping (Cyprus) Limited

(vii) Essar Steel India Limited

(viii) Essar Power Gujarat Limited

(ix) Essar Steel Logistics Limited

(x) Vadinar Oil Terminal Limited

(xi) Vadinar Ports & Terminals Limited

8. Employee Stock Option Scheme

a) In the Annual general meeting held on September 9, 2011, the shareholders approved the issue of Employee Stock options under the Scheme titled "Essar Shipping Employee Stock options Scheme -2011" (hereafter named ESOS A).

The ESOS A allows the issue of options to employees and executive Directors of the Company and its subsidiaries (whether in India or abroad). Each option comprises one underlying equity share.

As per the Scheme, the Compensation Committee grants the options to the employees deemed eligible. The exercise price of each option shall be determined by the Compensation committee as per the said scheme. The options granted vest in a graded manner over a period of 5/4/3 years from the date of the grant in proportions specified in the Scheme. Options may be exercised within 7 years from the date of vesting. The Company has issued the said ESOS in two tranches on November 2, 2011 and February 8, 2012 at an exercise price of Rs. 22.30 each, the market price of the shares on the grant date of the ESOS was Rs. 22.30 per share and Rs.31.30 per share respectively.

The difference between the market price of the share underlying the options granted on the date of grant of option and the exercise price of the option (being the intrinsic value of the option) representing Stock compensation expense is expensed over the vesting period.

9. Going Concern

At 31st March 2015 the Current Liabilities of the Company exceed its Current Assets primarily on account of current maturities of long term debt. The Management is in discussion with lenders (including debenture holder) to refinance the existing borrowings in a manner such that repayment schedules are aligned with projected debt servicing ability of the fleet. Having regard to above, the Company is confident that it will be able to meet its financial obligations in the foreseeable future, and accordingly the financial statements have been prepared on a going concern basis.

10. The previous year figures have been regrouped / reclassified wherever necessary to correspond with the current year's classification / disclosure.


Mar 31, 2014

CORPORATE INFORMATION

Essar Shipping Limited was incorporated in September 2010 and is listed on Bombay Stock Exchange and National Stock Exchange in India. The Company is mainly engaged in fleet operating and chartering and operates in international and coastal voyages. The Company has also directly and/ or through its subsidiaries invested in diverse business verticals viz. Fleet operating and chartering (tankers and dry bulkers), oilfields services (land rigs and semi- submersible rig) and logistics services (trucks, trailers and tippers). The place of business of the Company is in Mumbai, India.

1. Contingent liabilities

Rs. in Crore

Particulars As at As at 31st March, 2014 31st March, 2013

i) Guarantee given by a bank 30.00 30.00 against disputed custom duty demand of Rs.27.40 Crore by DGFT

ii) Corporate guarantees on 1,128.74 1,461.74 behalf of subsidiaries

iii) Bills discounted with bank 18.00 150.00

iv) Income tax demand -appeal 7.29 7.29 filed by the Income tax department in the High court of Bombay against the order of Appellate Tribunal in favour of the Company.

2. In view of exemption granted by the Central Government for shipping companies vide press note no.2/2011 dated 08.02.2011, information required under sub-clauses (a), (b), (c) and (e) of paragraph 5 (VIII) of part II of Revised schedule VI to the Companies Act, 1956, is not given.

3. The previous year figures have been regrouped / reclassified wherever necessary to correspond with the current year''s classification /disclosure.


Mar 31, 2013

1. CORPORATE INFORMATION

Essar Shipping Limited ("the Company") incorporated in 2010 is mainly engaged in feet operating and chartering and operates in international and coastal voyages.

2. Deferral / capitalisation of exchange difference

Pursuant to Notifcation issued by the Central Government under Companies (Accounting Standards) Amendment Rules, 2009 dated 29th December, 2011; the exchange differences arising on conversion/translation/settlement of long-term foreign currency monetary items in so far as they relate to the acquisition of a depreciable capital asset, has been added to or deducted from the cost of the respective asset and has been depreciated over the remaining balance useful life of the asset. In case of exchange difference related to any other long-term foreign currency monetary item, the exchange difference has been deferred in the "Foreign Currency Monetary Item Difference Account", which has been amortised over the period till the date of maturity or 31st March 2020, whichever is earlier. The following is the effect of the option exercised:-

3. Contingent liabilities Rs. in crore

Particulars As at 31st As at 31st March, 2013 March, 2012

i) Guarantee given by a bank against disputed custom duty demand of Rs.27.40 30.00 30.00 crore by DGFT

ii) Corporate guarantees on behalf of subsidiaries 1,461.74 1,461.74

iii) Corporate guarantees on behalf of others jointly and severally with Essar Ports - 410.00 Limited

iv) Bills discounted with bank 150.00 21.00

v) Income tax demand -appeal fled by the Income tax department in the High court 7.29 7.29 of Bombay against the order of Appellate Tribunal in favour of the Company

4. Business segment and geographical segment

a) Business segment

The Company has only one reportable primary business segment of feet operating and chartering.

b) Geographical segment

The Company''s feet operations are managed on a worldwide basis from India. The revenue from operations are identifed as geographical segment based on location of customers:

5. Related party relationships, transactions and balances:

a) Holding companies:

i) Essar Global Fund Limited (formerly Essar Global Limited) , Cayman Island, ultimate holding company ii) Essar Shipping & Logistics Limited, Cyprus, immediate holding company

b) Subsidiaries:

i) Essar Logistics Limited, India

ii) Energy Transportation International Limited, Bermuda

iii) Energy II Limited, Bermuda

iv) Essar Oilfelds Services Limited, Mauritius

v) Essar Oilfeld Services India Limited, India

c) Key management personnel:

i) Mr. A. R. Ramakrishnan

ii) Captain Anoop Kumar Sharma

d) Other related parties where there have been transactions:

Enterprises commonly controlled or infuenced by major shareholders / directors / relatives of directors of the Company:

(i) Aegis Limited

(ii) Essar Bulk Terminal Limited

(iii) Essar Bulk Terminal Paradip Limited

(iv) Essar Oil Limited

(v) Essar Ports Limited

(vi) Essar Shipping (Cyprus) Limited

(vii) Essar Steel India Limited

(viii) Essar Power Gujarat Limited

(ix) Vadinar Oil Terminal Limited

(x) Vadinar Power Company Limited

(xi) Arkay Holdings Limited*

(xii) Arkay Sea Logistics Limited*

(xiii) Essar Agrotech Limited*

(xiv) Essar House Limited*

(xv) Essar Information Technology Limited*

(xvi) Essar Infrastructure Services Limited*

(xvii) Essar Investments Limited*

(xviii) Essar Services India Limited*

(xix) Futura Travels Limited*

(xx) India Securities Limited*

(xxi) Prajesh Marketing Limited*

6. Employee Stock Option Scheme

a) In the Annual general meeting held on September 9, 2011, the shareholders approved the issue of Employee Stock options under the Scheme titled "Essar Shipping Employee Stock options Scheme -2011" (hereafter named ESOP A). The ESOP A allows the issue of options to employees and executive Directors of the Company and its subsidiaries (whether in India or abroad). Each option comprises one underlying equity share.

As per the Scheme, the Compensation Committee grants the options to the employees deemed eligible. The exercise price of each option shall be determined by the Compensation committee as per the said scheme. The options granted vest in a graded manner over a period of 5/4/3 years from the date of the grant in proportions specifed in the Scheme. Options may be exercised within 7 years from the date of vesting.

The difference between the fair price of the share underlying the options granted on the date of grant of option and the exercise price of the option (being the intrinsic value of the option) representing Stock compensation expense is expensed over the vesting period.

7. In view of exemption granted by Central Government for shipping companies vide press note no.2/2011 dated 08.02.2011, information required under sub-clauses (a), (b), (c) and (e) of paragraph 5 (VIII) of part II of Revised schedule VI to the Companies Act, 1956, is not given.

8. The previous year fgures have been regrouped / reclassifed wherever necessary to correspond with the current year''s classifcation /disclosure.


Mar 31, 2012

A. GENERAL INFORMATION

Essar Shipping Limited ("the Company") was incorporated in the name of Essar Ports & Terminals Limited in the State of Gujarat on April 16, 2010. The name was subsequently changed to Essar Shipping Limited with effect from September 7, 2010. The Company received the Certificate of Commencement of Business on June 1, 2010. The main object of the Company on incorporation was to carry on the business inter alia of providing ports and terminals services. The main objects of the Company were expanded on August 25, 2010 to inter alia provide shipping & logistics and oilfields services business.

B. COMPOSITE SCHEME OF ARRANGEMENTS

The Hon'ble High Court of Gujarat at Ahmedabad vide order dated March 1, 2011 approved the Composite Scheme of Arrangement (Scheme) between Essar Shipping Ports & Logistics Limited (now EPL), Essar Ports & Terminals Limited (EPTL) Mauritius, Essar International Limited (EIL) Mauritius and Essar Shipping Limited (ESL).

The Scheme provided for the merger of EPTL and EIL with ESPLL and the demerger of the Shipping & Logistics Business and the Oilfields Services Business into ESL.

Pursuant to the Scheme, all the assets and liabilities pertaining to the Shipping & Logistics Business and the Oilfields Services Business stood transferred to and became vested in ESL at the book values (ignoring revaluation) as appearing in the books of account of ESPLL with effect from October 1, 2010 being the Demerger Appointed Date, which are based on financial statements as on 30th September, 2010.The difference between the values of assets and liabilities transferred was first adjusted against share capital (Rs. 205.23 crores), Rs. 25 crores against Debenture Redemption Reserve and the balance to General Reserve of the Company.

Upon the Scheme becoming effective, ESL ceased to be a subsidiary of ESPLL with effect from October 1, 2010.

Non Convertible Debentures aggregating to Rs. 700 crores and Foreign Currency Convertible Bonds aggregating to USD 240 million (out of USD 280 million) issued by ESPLL stood transferred to ESL.

In consideration of the demerger, the Company allotted 20,52,27,768 equity shares of Rs. 10/- each as fully paid up to the eligible members of ESPLL whose name were recorded in the register of members of ESPLL as on May 19, 2011, in terms of the Scheme as detailed below.

Simultaneously, the original issued equity share capital i.e. 50,000 equity shares of Rs. 10/- each were cancelled in accordance with the Scheme.

1. Deferral / capitalisation of exchange difference

Pursuant to Notification issued by the Central Government under Companies (Accounting Standards) Amendment Rules, 2009 dated 29th December, 2011; the exchange differences arising on conversion/translation/settlement of long-term foreign currency monetary items in so far as they relate to the acquisition of a depreciable capital asset, has been added to or deducted from the cost of the respective asset and has been depreciated over the remaining balance life of the asset. In case of exchange difference related to any other long-term foreign currency monetary item, the exchange difference has been deferred in the "Foreign Currency Monetary

2. Contingent liabilities

As at 31st As at 31st Particulars March, 2012 March, 2011 Rs.in crore Rs.in crore

i) Guarantees given by bank against disputed custom duty by DGFT 30.00 30.00

ii) Corporate guarantees on behalf of subsidiaries 1,461.74 1,386.24

iii) Corporate guarantees on behalf of others jointly and severally with Essar Ports Limited 410.00 -

iv) Bills discounted with bank 21.00 17.64

v) Disputed Sales tax demand - 52.20

vi) Income tax appeals before ITAT 7.29 7.29

3. Capital commitments and other commitments

a) Capital commitment

Estimated amount of contract remaining to be executed on capital account and not provided for - 76.35

b) Other commitments

For commitment relating to lease arrangement, please refer note 24

The Company entered into a operating lease arrangement for chartering of six vessels for a period of 13 years from the date of delivery of each vessel. Of six vessels, the company has inducted three vessels during the year.

4. Business segment and geographical segment

a) Business segment

The Company has only one reportable segment of fleet operating and chartering.

b) Geographical segment

The Company's fleet operations are managed on a worldwide basis from India. Fleet operating and chartering earnings based on the geographical location of customers:

Note:

(i) In the current year, FFCB and ESOP have not been considered for the purpose of calculation of weighted average number of diluted equity shares, as they are anti-dilutive. (ii) The shares to be issued on demerger were pending allotment at 31st March, 2011 and hence have not been considered for calculation of basic earnings per share for the period ended 31st March, 2011.

5. Derivative instruments and unhedged foreign currency exposure :

A) Derivative contracts outstanding as at the Balance Sheet are as follows:

The company has entered into Derivative contracts for hedging currency related risks. The Principal only swap contract to sell Rs. 200 crores (previous year : nil) is outstanding as on the balance sheet date.(Refer note 7)

i) Mortality rates considered are as per the published rates in the Life Insurance Corporation (1994-96) Mortality table,

ii) Leave policy:

a) Sick leave balance as at the valuation date and each subsequent year following the valuation date will be availed by the employee against future sick leave; the sick leave balance is not available for encashment.

b) Leave balance as at the valuation date and each subsequent year following the valuation date to the extent not availed by the employee is available for encashment on separation from the Company up to a maximum of 120 days.

iii) The contribution to be made by the Company for funding its liability for gratuity during the financial year 2012 will be made as per demand raised by the fund administrator Life Insurance Corporation of India.

6. Related party transactions:

a) Holding companies :

i) Essar Global Limited, Cayman Island, ultimate holding company

ii) Essar Shipping & Logistics Limited, Cyprus, immediate holding company

b) Subsidiaries:

i) Essar Logistics Limited, India

ii) Energy Transportation International Limited, Bermuda

iii) Energy II Limited, Bermuda

7. Employee Stock Option Scheme

a) In the Annual general meeting held on September 9, 2011, the shareholders approved the issue of Employee Stock options under the Scheme titled "Essar Shipping Employee Stock options Scheme -2011" (hereafter named ESOP A).

The ESOP A allows the issue of options to employees and executive Directors of the Company and its subsidiaries (whether in India or abroad). Each option comprises one underlying equity share.

As per the Scheme, the Compensation Committee grants the options to the eligible employees. The exercise price of each option shall be determined by the Compensation committee as per the said scheme. The options granted vest in a graded manner over a period of 3 to 5 years Starting from the third year of grand date in proportions specified in the Scheme. Options may be exercised within 7 years from the date of vesting.

The difference between the fair price of the share underlying the options granted on the date of grant of option and the exercise price of the option (being the intrinsic value of the option) representing Stock compensation expense is expensed over the vesting period.

8. In view of exemption granted by Central Government for shipping companies vide press note no.2/2011 dated 08.02.2011, certain information pertain to value of imports calculated on CIF basis, expenditure on foreign currency, value of all imported raw material, spare parts and components consumed, earnings in foreign currency during the year is not given.

9. The current year figures are not comparable with the previous year figures, as in the previous year, effective operation was for six months only, since the demerger of shipping, oilfield and logistics business from Essar Ports Limited (erstwhile Essar Shipping Ports & Logistics Limited) was effective from 1st October, 2010.

10. The previous year figures have been regrouped / rearranged wherever necessary to conform to the current year classification as per the requirement of the Revised schedule VI notified under the Companies Act, 1956.

 
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