ABG Shipyard

The company, with reserves of Rs 200 crore and a strong balance sheet, is likely to find it easier to raise debt to fund the acquisition. It has time till August 24 to change its offer price

WITH ABG Shipyard jumping in the fray to acquire Great Offshore, the battle between it and Bharati Shipyard has intensified. As things stand, ABG Shipyard holds a 9% stake in Great Offshore and it has made an open offer to acquire an additional 23.5% stake in the company at Rs 520 per share, which will up its stake to 32.5% in Great Offshore. This would entail an outgo of Rs 654 crore. Compared to this, Bharati Shipyard holds a 19.5% stake. However, with both ABG and Bharati getting serious about their moves, analysts feel things will not end too soon and do not rule out a revision in offer price, even from here.

Buying Great Offshore is lucrative and the opportunity is hard to miss. ABG and Bharati make ships and supply vessels that are used by offshore oilfield firms like Great Offshore. The saga of Great Offshore dates back to December 2008, when chairman Vijay K Sheth approached his friend PC Kapoor, managing director of Bharati Shipyard for a loan of Rs 240 crore. This was an amount he owed two financial institutions — IL&FS and Motilal Oswal. In exchange for the funds, Sheth pledged 14.89% of his stake in Great Offshore with Kapoor. These shares were earlier placed as collateral with the two financial institutions.

Great Offshore is a rare case of an Indian promoter losing control on account of the stock markets crashing. Vijay Sheth raised the money in 2007 by pledging his shares in order to buy out his cousins’ stakes in the company. Under the Sheth family settlement in 2007, Vijay Sheth was to buy out the equity stakes of his cousins in Great Offshore which was carved out of Great Eastern Shipping as part of division of assets between the family members.

In May 2009, with Great Offshore unable to repay its loan, Bharati Shipyard acquired the shares pledged by Sheth in a cashless deal taking Bharati’s stake in Great Offshore to 14.89%. However with no management control, even rival ABG Shipyard took a fancy to Great Offshore.

Globally there are several instances of ship builders being asset owners. For rival Bharati Shipyard, it has an even higher synergy as Great Offshore has been its customer for many years.

As of now, one could say that the battle could move either way. While Bharati Shipyard has the advantage of being the first mover, having acquired the 15% stake at a lower price of Rs 320 per share, ABG Shipyard has acquired the 9% stake by paying about Rs 160-170 per share more than what Bharati paid. ABG Shipyard, has reserves of Rs 200 crore and with a stronger balance sheet, it would find it easier to raise debt to fund the acquisition as compared to Bharati.

The two companies have time till August 24 to change their offer price. Some significant shareholders who hold more than 1% stake in the company and could help clinch it are Videocon, financial institutions and mutual funds. As of now this one has the makings for a photo-finish.