Bangalore: Bharati Shipyard Ltd, which on Thursday acquired a 14.89% strategic stake in Great Offshore Ltd to become its largest shareholder, said it does not plan to change the existing management of the offshore oilfield services firm.
Friend in need: Kapoor says he is happy with the current management and the conversion of pledged shares into equity was a mutual decision.
“There will be no change in the management of Great Offshore Ltd,” P.C. Kapoor, managing director (MD) of Bharati Shipyard, the country’s second biggest private shipbuilder, told Mint by phone on Friday. “We are quite happy with the existing management.”
This means Vijay Sheth, vice-chairman and MD of Great Offshore, keeps his job, though he is now left with only 0.84% stake in the company he helped create three years ago by demerging it from Great Eastern Shipping Co. Ltd, India’s biggest private ocean carrier, after a family split.
Bharati Shipyard acquired the shares Sheth had pledged with its two subsidiaries in December for a Rs200 crore loan, the first instance in India of a promoter losing ownership after losing the shares he pledged for loans.
“Great Offshore is a strategic investment for Bharati Shipyard. The conversion of (the) pledged shares into strategic equity stake is a mutual decision between us,” Kapoor said about the circumstances that led to the conversion some four months after the pledge was executed.
Typically, lenders who give loans against shares keep collateral worth three times the loan amount. If the value of the pledged shares falls below a particular level, the lenders either ask their clients to top-up the collateral or they sell the shares to recover their money.
In Great Offshore’s case, the shares have increased by at least 30% since January, while the Sensex, the Bombay Stock Exchange’s (BSE) benchmark index, has climbed some 23% in this period. On Friday, Bharati Shipyard shares rose 13% to close at Rs107.40 on BSE, while Great Offshore shares fell nearly 3% to Rs286.75 and the Sensex slipped 2% to end at 11,876.43 points.
Fourteen of Great Offshore’s fleet of 41 offshore vessels were built at Bharati Shipyard. The shipbuilder is now constructing two more offshore vessels for the firm—a jack-up oil drilling rig and a multi-purpose offshore support vessel—together costing about Rs1,200 crore. Completion of both vessels has been delayed.
The rig was slated to start work from 14 May on a five-year contract with state-owned oil exploration and production firm Oil and Natural Gas Corp. Ltd (ONGC) at a day rate of $146,000 (around Rs72 lakh). Bharati says the construction of the rig, the first to be built at an Indian yard, will now be completed in November or December.
“The delay in the construction of the rig is not on account of Bharati Shipyard...there is no question of any material penalty or material loss to Bharati Shipyard,” Kapoor said, without specifying the reason for the delay.
Shipyards are usually required to compensate the fleet owner for any delay in delivery caused by them.
Great Offshore, however, may not be as lucky with ONGC, which was to start using the rig this month for oil exploration off India’s coast. The delay attracts penalties or even a cancellation of the contract.
“Great Offshore has sought extension of time from ONGC for handing over the rig,” an ONGC executive said on condition of anonymity. “We haven’t taken a decision yet on its request...”
The share pledge in December was widely seen as a personal bailout of Sheth by his close friends Kapoor and Vijay Kumar, the two promoters of Bharati Shipyard.
Sheth has been on shaky ground since October, after the global financial turmoil, worsening western economies, and the fall in oil and other commodity prices started to bite the stock price of Great Offshore in a falling market.
He had initially pledged his shares with lenders to raise funds so he could buy the holding in Great Offshore when it was demerged from Great Eastern Shipping.
But with the shares of Great Offshore plunging to about Rs300 from the allotment price of Rs850 in 2006, the lenders started putting pressure on Sheth, saying they would sell the pledged shares if he could not meet the shortfall in scrip prices.
When some of these lenders approached potential buyers for selling the shares, Sheth had no choice but to lean on his close friends, the promoters of Bharati Shipyard, to bail him out.