Mumbai: India’s largest private shipping company Great Eastern Shipping Co. Ltd, or GE Shipping, hived off its offshore business into a separate company, Great Offshore Ltd, in 2005. However, even after this business split, GE Shipping has been investing aggressively in offshore services through its wholly-owned subsidiary Greatship India Ltd. Greatship India Ltd is investing more than $830 million (Rs3,569 crore) for acquiring offshore services assets and building India’s youngest offshore fleet, including jack-up drills used for exploring oil. Ravi K. Sheth, executive director of GE
Shipping and managing director of Greatship India, does not see this as a shift in the company’s business strategy. “At this point, the value of ships is high and there is less opportunity for investment in shipping. But if the market corrects, money will go back to shipping, which is our core business. Money must flow seamlessly between businesses,” Sheth says in his first interview with the media after the split. According to him, there is no no-compete and no-poaching agreement between GE Shipping and Great Offshore, which is headed by his cousin Vijay Sheth. “We are on the best of terms and there is absolutely no animosity between us,” Sheth adds. Greatship India will be present in all areas providing support to oil and gas exploration and production companies and Sheth rules out any future split in GE Shipping between shipping and offshore businesses. He also rules out any possibility of taking the subsidiary to the market at least till 2010-11 or seeking any private equity investment in it. “GE Shipping has sufficient cash flow to fund the plans and there is no need for cash from any investor at this point,” he says. Edited excerpts from the interview:
Aggressive moves: Sheth says the firm will remain focused on oilfield services and has no plans of getting into shipbuilding and dredging. (Photo: Abhijit Bhatlekar/ Mint)
GE Shipping is now focusing more on its offshore business and its investment in the offshore business far exceeds that in the shipping business. Is there a shift in business strategy behind this?
GE Shipping’s entry into the offshore sector is through its wholly owned subsidiary, Greatship, and therefore, is strictly not its own capital expenditure. Greatship commenced operations in 2006 and we clearly foresaw a demand upswing in oilfield services, given the global under-investment in this sector for over 10 years and the need for countries and oil companies to step up their exploration programmes.
A significant proportion of the global supply vessel fleet, as well as drilling units, are old and have to be phased out over the next five to seven years. We are, therefore, looking at a huge replacement market in addition to the already growing demand for such assets. While there are newer shipbuilding yards coming up in countries such as China and India, there is a big shortage of equipment, such as main engines, thrusters, cranes, winches, etc. all of which need to be delivered in tandem with the vessels on order.
You hived off the offshore business as a separate firm but after the split, GE Shipping itself has aggressively been investing in the offshore business. Doesn’t that go against the logic for the split?
There is logic behind the decision. At that time, it was a good idea as the offshore multiple was greater than the shipping multiple and we wanted to unlock the value (of the company). The investors now have the choice of investing in shipping, offshore or even both.
For historical reasons, we had a fairly heavy and unwieldy management structure. The business split has given us a focused management structure where decisions can be made quickly and it has increased our ability to be more efficient. Now, the offshore business could pursue its own path. There is nothing right or wrong about the recast... There is absolutely no animosity between us and our cousin Vijay Sheth.
We have demerged the company to add value for our investors. But the funny part is, when you are diversifying people say you must have focused attention and if you’re focusing on your core business, the advice is (that) you must diversify. So, you’re damned if you don’t do and damned if you do!
Is there no-compete clause between GE Shipping and Great Offshore Ltd?
There is no restriction on anything. It’s a non-restrictive arrangement with no non-compete and non-poaching agreements…
Earlier, it was a business split between you and your cousin. Shall we see a similar split between shipping and offshore in the future?
Absolutely not! We are not contemplating anything on this line. The shipping business has its cycles. At this point, the value of ships is high and there is less opportunity for investment in shipping. But if the market corrects, the money will go back to shipping which is our core business. Money must flow seamlessly between businesses.
You have placed orders worth $700 million for your offshore business? How are you funding this?
Our total capital expenditure is just above $830 million and is funded roughly on a 25:75 basis between equity and debt. Our offshore supply vessel fleet is diverse and comprises anchor handlers, platform supply vessels and 10 very specialized multi-support vessels that are employed, amongst other things, for the sub-sea construction market.
We have a total of 23 vessels, in sea and on order, and most of them will be delivered between 2009 and 2010. In addition, we will own and operate two high spec 350ft jack-up rigs, both being built and delivered in 2009. We will, clearly own the youngest fleet in India and, perhaps, one of the youngest globally.
Why did Greatship take the ‘new rigs’ route? After all, there are no age restrictions in India.
While it is a tempting to choose the ‘second hand’ route, as it will lead to early traction and quick profits, we decided to acquire assets for the long term that are technologically and operationally modern, and acceptable to customers globally. Very early on, we decided not to be solely India-centric, but to operate in diverse markets. By not having age restrictions, India has unfortunately become a dumping ground for old assets, many of them built in the 1980s. Foreign owners love our market for precisely this reason as many of their aged vessels may not find employment easily in other markets.
Typically, they possess features that are outdated and unsuitable to today’s field conditions, but owing to tightness in supply, oilfield operators are forced to accept them. Sooner or later, when this party ends, we believe that newer, technologically advanced assets will be the preferred option.
Where are your vessels currently plying?
Of our five vessels in the water, two are operating in India, one in the North Sea, one in the Middle East and one in South Africa. The next two vessels (being delivered in August and November) are being targeted at the Mediterranean and South America. Being service providers in diverse markets is going to be part of our core philosophy.
Qualified and trained officers and crew are in short supply. How is Greatship managing the business?
Indeed, well-trained officers are in short supply. We are focused on this issue and are finding innovative ways to attract and retain talent. We are the first Indian offshore company, perhaps even the first Asian one, to offer Esops (employee stock options) to our fleet staff. We intend to set up an offshore training institute on the lines of our existing shipping institute set up in Lonavala (Maharashtra).
Are you planning on building or buying more assets?
Yes, of course. We are only two years old. We are bullish on the offshore oilfield market, and we believe that exploration and production companies are going to require increasingly sophisticated and high-tech solutions to seek and find oil and gas in increasingly difficult conditions. While I cannot share the kind of assets that we are going to build, as this forms an integral part of our strategy, you can expect to hear regular announcements in future.
We believe you are looking for private equity investors and have tapped various firms, including Capital International, Singapore for your offshore business. What about listing the firm?
This is not entirely true. We are currently well-capitalized to support our expansion programme. GE Shipping has sufficient cash flow to fund the plans and there is no need for cash from any investor at this point. We are not looking for any PE investment and neither do we want to list the firm at the moment. It will continue to remain GE Shipping’s subsidiary. We must build the business of a reasonable size and that may take time till 2010-11.
What is the kind of revenues that GE Shipping is expecting from its offshore business?
I can’t give you numbers, but Greatship should have a meaningful impact on GE Shipping’s consolidated results by 2010-11.
Are you looking at acquisitions of rig companies to overcome availability issues?
When will the shareholders of GE Shipping benefit in terms of valuations out of the Greatship group of companies in the offshore business?
Greatship’s profitability will only have a meaningful impact on Great Eastern’s consolidated numbers from 2010-11 onwards as a large proportion of our fleet will be in the water by then.
You are also planning to enter the construction support services business, virtually replicating all businesses of Great Offshore. Are you also entering the harbour tug business?
We will not enter the harbour tug business as it does not align with our core business domain which is in offshore oilfield services. Our fleet profile includes 10 specialized vessels which will be utilized to support subsea construction activities.
Will you also get into the marine construction business?
If you mean whether we will actually enter fabrication, the answer is no. We will provide support services for marine construction.
How about related fields such as dredging and ship building?
We will remain very focused on oilfield services. There is no plan to get into ship building and dredging.
Will rising crude oil prices have any effect on your business?
There is no direct connection with crude oil prices. We are providing services to exploration and production companies in drilling the oil by carrying workers and equipment. With oil prices going up, it makes economic sense for these companies to go for more exploration and production.
These companies have realized that exploration activities in the shallow water or nearby shore have saturated and they will have to move towards deep sea. Therefore, it is going to be a huge challenge for offshore services companies like us to provide advanced systems to complement deep sea drilling.
You have an investment in Business Standard, a financial daily. How does it gel with your core business?
That was a fleeting opportunity. My cousin Sudhir Mulji, then vice-chairman of GE Shipping, used to write for the Business Standard. He thought it might not be a bad idea to invest in a consumer brand as shipping cannot be a consumer brand. It’s an insignificant part of our balance sheet and we don’t spend management time except for attending the board meetings.
Will you get out of it?
We will see…
What about the investment in Financial Technologies Ltd?
I have done this in my personal capacity.
P. Manoj contributed to the story.