Bangalore: In 2006, when Vijay Kantilal Sheth strove to spin off the offshore service business of Great Eastern Shipping Co. Ltd, India’s biggest private ocean carrier promoted by his cousins, there was nothing to suggest he would lose control over the new firm in around three years.
In a way, Sheth is the first casualty in the Indian shipping sector of the global financial turmoil and he has perhaps been let down by the friends he relied on in a crisis.
The lucrative offshore oilfield services business was at the centre of a tussle among three Sheth cousins—with Great Eastern’s deputy chairman and managing director Bharath Sheth and executive director Ravi Sheth on one side, and Vijay Sheth on the other.
Vijay Sheth engineered the split effectively, but he cannot be credited with founding Great Offshore, formerly known as Great Atwood Ltd.
Founded in 1987, Great Atwood was one of India’s earliest offshore ventures, the result of the far-sighted vision of Vasant Sheth, the late chairman and founder of Great Eastern Shipping Co. In 1993, after a merger, Great Atwood became a subsidiary of Great Eastern Shipping. After the spin-off, it became Great Offshore.
“The architect of this demerger was Sudhir J. Mulji, the late vice-chairman of Great Eastern whose untimely death prior to the demerger robbed Great Offshore of a seasoned chairman who would have steered the firm away from the morass that Vijay Kantilal Sheth has landed in,” said a person close to the Sheth family. He did not want to be named. Mulji was a nephew of Vasant Sheth.
Vijay Sheth gained control of the offshore services firm, but only after he had pledged nearly his entire potential holding in Great Offshore to lenders to raise the money to buy those shares. The timing couldn’t have been worse.
Some three years ago, the offshore services sector was riding a wave on the back of high crude prices and heightened exploration activity. But as the global economy started slowing in mid-2008 and crude prices declined nearly 70%, exploration activity slowed, throwing Sheth’s plans off track.
On 8 May, the reclusive and media-shy Sheth earned the dubious distinction of becoming the first promoter in India to lose control over his company because of the shares he had pledged.
On 30 May, an embattled Sheth decided to throw in the towel. At a hastily summoned board meeting, he announced that he was stepping down as the vice-chairman and managing director of Great Offshore.
The first signs of trouble actually came in October, soon after the collapse of Lehman Brother Holdings Inc. hastened the global downturn. As Great Offshore’s share price plunged to below Rs300 from the allotment price of Rs850 in 2006, the lenders Sheth had pledged his shares with prepared to sell the stock to recover their money if Sheth couldn’t meet the shortfall in scrip prices.
Typically, lenders demand shares worth two-to-three times the loan amount as collateral when lending against shares. This is done to ensure that in the event of share value eroding by half at any point in time, they can be sold to recover the loan amount.
With no help coming from anybody, Sheth realized the only ones he could rely on to bail him out of the financial crisis were his good friends, P.C. Kapoor and Vijay Kumar, promoters of Bharati Shipyard Ltd.
Sheth had helped Kapoor and Kumar by placing orders for several offshore ships when Bharati was a struggling shipbuilder about two decades back. Fourteen of Great Offshore’s fleet of 41 offshore vessels were built at Bharati Shipyard.
Bharati is constructing two more offshore vessels for Great Offshore—a jack-up oil drilling rig, India’s first indigenously built rig, and a multi-purpose offshore support vessel—together costing about Rs1,200 crore.
In December, Sheth pledged his 14.89% stake in Great Offshore with two units of Bharati Shipyard in return for a Rs240 crore loan.
This gave him some respite, but for just six months. Eventually, even his friends could not help avert a personal failure.
When Sheth couldn’t repay the loan, Bharati decided to invoke the pledge and acquired the shares, leaving him with just 0.84% stake in the company he helped create.
Bharati now plans to make an open offer to buy an additional 20% of the shares of Great Offshore from the public.
Sheth’s departure was construed as a change of management, though Bharati’s acquisition of the pledged shares to become the largest shareholder in Great Offshore have it just under 15% of the shares in the company; 15% is the level at which an open offer becomes mandatory according to Indian law.
Mint could not ascertain what Sheth plans to do next.
Since hiving off its erstwhile offshore service business, Great Eastern has opened its own offshore oilfield services subsidiary.
Greatship India Ltd has spent close to Rs3,100 crore in less than two years to buy offshore assets to tap demand from the oil exploration and production industry.
Bharat Sheth and Ravi Sheth, the owners of Great Eastern, also hold around a 5% stake in Great Offshore.