Life seems to have come a full circle for both ABG Shipyard and Bharati Defence ever since they both made competing open offers for Great Offshore in 2009.
Bharati Defence (then Bharati Shipyard), which bought the Mumbai-based offshore oilfield services provider for over Rs 700 crore, has been suffering from a winner’s curse ever since.
Its troubles began soon after it won the takeover battle for Great Offshore. Triggers for its fall, many say, mainly had to do with unfavourable conditions in the country.
Importing ships had always been cheaper than building them at our backyard. Basic customs duty was little and countervailing levy on imports was nil — which put Indian shipyards, especially private players like ABG and Bharati, at a greater disadvantage while building vessels for the country.
In 2010, Bharati’s secured and unsecured loans more than doubled from their levels in the year before and by March 2013 its total debt stood at Rs 8,500 crore. With its back to the wall, the shipbuilder tried its best to get out the funk.
In 2013, it approached the corporate debt restructuring cell only to walk right out of it the next year. There wasn’t much left for its lenders to do but to sell a majority of the loans to an asset reconstruction company. Right now, Edelweiss Asset Reconstruction owns about three-quarters of the shipyard’s debt. For what it was worth, the shipbuilder also tapped the Board for Industrial and Financial Reconstruction last year.
Meanwhile, a similar story was unfolding in the docks of ABG Shipyard. In 2010, it completed its purchase of the indebted Western India Shipyard, buying it off the hands of its lender. The repair rig had been making nothing but losses since it began life in 1996.
And with this purchase, along with the many headwinds that already existed in the system, ABG’s fortunes changed for the worse.
Right now, burdened with a debt of Rs 11,000 crore, a fate worse than Bharati’s, ABG’s lenders are now looking to take it over, after its promoters couldn’t find an investor once again. Sources now say its 22-strong lenders are considering strategic debt restructuring (SDR) to recover their debt.
There isn’t much choice or time left for these two: both have begun their search for an investor. Recently, however, ABG’s talks with Vietnam-based Masan Group for a strategic stake sale came unstuck.
There is rough weather ahead of both of them unless the government steps in with quick fixes. More incentives for private shipbuilders and allowing them to win defence contracts would be one way to go. Raising import costs would be another.