02-12-2017

A takeover battle that left 2 shipyard giants floundering

A grand plan that had created waves seven years ago featured aggressive bidding by two shipyard giants, Bharati Defence and Infrastructure (earlier Bharati Shipyard) and ABG Shipyard, for offshore services firm Great Offshore. Seven years later both bidders are floundering, mired in debt, and all at sea about their future course.

“It was a takeover battle unheard of in Corporate India at that time. A mountain of debt, tanking markets and an invoked pledge had led to the grounding of Great Offshore in 2009,” said an official at a legal and tax consultant firm involved in the insolvency process.

Winner’s curse

“The white in shining armour, Bharati Shipyard, took control of Vijay Kantilal Sheth’s 14.89% stake. Seth was the Vice Chairman of Great Offshore. Subsequently, an open offer was announced, not for control but to consolidate,” said the official.

The chase to acquire Great Offshore by both bidders resulted in the open offer price of Great Offshore soaring from Rs. 344 to Rs. 590 per share, increasing Bharti Shipyard’s investment by an additional Rs. 450 crores.

Two months later, SEBI approved the two offers. “ABG Shipyard could gain control of 32 per cent of outstanding Great Offshore shares at Rs. 520 a share, to acquire control, while Bharati Shipyard could acquire 20 per cent at Rs. 590 a share, but without control. In order to gain control, Bharati had to do another 20 per cent offer,” said the official.

A day before the two open offers were to simultaneously open, ABG Shipyard sold its 8.27 per cent stake in Great Offshore. “At the penultimate moment, it dropped out of the race, leaving everyone stumped, and igniting fresh controversy from a legal, regulatory and business perspective,” said the official. Bharti Defence snagged Great Offshore.

The “hot chase and enthralling scuffle” to acquire Great Offshore may have become the winner’s curse for Bharti Defence, as seven years later it is hemmed in and circled by many suitors intent on a takeover.

Troubled waters

Bharati Defence was among the largest private sector ship builders in the country, engaged in the design and construction of naval ships, tankers, as well as passenger vessels and offshore patrol vessels. The Indian Navy and the port trust featured among its many clients.

Though it is currently in the midst of an insolvency resolution process by the National Company Law Tribunal, the company continues to complete some of its pending orders.

Sources said following a failed corporate debt restructuring (CDR), the company’s lenders sold their loans in June 2014 to Edelweiss Asset Reconstruction Company (ARC), a bad loan buyer. At the start of 2017, Bharati Defence had outstanding debt of about $1.3 billion ( Rs. 8500 crore), of which Edelweiss ARC holds 75 per cent.

Along with Bharati Defence, ABG Shipyard is the other private shipbuilder facing acute financial stress with a total outstanding debt of Rs. 16,400 crore.

While ABG Shipyard saw insolvency proceedings being initiated by the Ahmedabad bench of the National Company Law Tribunal (NCLT) this July, Edelweiss ARC filed a case at the NCLT seeking permission to turnaround Bharti Defence under a new management. This January, Edelweiss ARC was seeking to file an insolvency case against Bharati Defence in the NCLT to pre-empt winding-up petitions by unsecured creditors.

NCLT also ordered commencement of a corporate insolvency resolution process against ABG Shipyard on August 1, 2017. UK’s Liberty House was reportedly keen to team up with other Indian partners to make use of the existing shipbuilding and repair space, and engage in defence deals other than those related to steel, since the Group is also into defence and aerospace. When contacted, Liberty House refused to comment on ABG Shipyard.

Ironically, drilling company Great Offshore, which had become the epicentre of a bidding war, is now immersed in a court battle. The Bombay High Court admitted two petitions this May, for winding up of Great Offshore, whose total debts are said to be more than Rs. 2500 crores. The petitions have been filed by the Export Import Bank of India and Punjab National Bank.

Source: The Hindu Business Line

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