Bharati Shipyard sells wind power business for Rs55 crore
The firm, which was once India's second-largest private shipyard, owes some `8,000 crore to a consortium of 23 banks
Bangalore: Financially stressed Bharati Shipyard Ltd has sold its wind power business for ₹ 55 crore as it embarks on a tortuous and uncertain voyage that could decide whether the firm will overcome the crisis and revive operations, or go down after a failed corporate debt restructuring (CDR) plan.
Promoted by naval architects Prakash Kapoor and Vijay Kumar, the firm, which was once India’s second-largest private shipyard, owes some ₹ 8,000 crore to a consortium of 23 banks led by State Bank of India (SBI), which have become non-performing assets. Of the 23 lenders, 11 have sold their loans of ₹ 4,800 crore comprising 60% of the total exposure to Edelweiss Asset Reconstruction Co. Ltd. Of the remaining 12, Syndicate Bank and Canara Bank said they have decided to exit the lending consortium and were in the process of calling for bids to sell their loan book worth a combined ₹ 500 crore to asset reconstruction companies (ARCs), officials at these banks said.
Bharati’s windmill assets comprised 14 wind turbine generators capable of producing a combined 15 mega watts (MW) of power in Maharashtra. “The wind mill sale to a Ghatge Patil Group company is as per the CDR package approved by the lenders earlier," said Siby Antony, chief executive officer and managing director of Edelweiss Asset Reconstruction Co.
Under CDR, bankers typically extend the loan repayment period, cut lending rates, at times agree to forego part of the debt, and may offer a repayment holiday.
“Bharati should focus on its core speciality of building ships and be willing to sacrifice their non-core assets," said an executive with a Mumbai-based ARC sponsored by three state-run banks and a private sector bank. “That’s where companies are most successful in nursing themselves back to financial health in a shorter time frame even after the CDR failed," he said on the condition of anonymity.
Bharati’s annual loss widened to ₹ 842.73 crore in fiscal 2014 from ₹ 492.27 crore a year earlier.
“The company’s operating results are materially affected due to factors such as global meltdown in shipbuilding industry, huge finance costs and part implementation of restricting scheme," Prakash Kapoor, managing director of Bharati said on 8 September while announcing the firm’s financial results for fiscal year 2014.
“The company is implementing various long-term measures to improve its cash flow and revival of operations. The company is exploring various options of financial restructuring and is in discussions with Edelweiss ARC and other institutions to raise finance for revival. Upon revival, the company will be able to make optimum utilization of its green-field facilities, re-negotiate contracts and complete the under-construction vessels to generate future cash flows. The company believes that these measures will not only generate cash flows for revival, but will also result in future orders and consequently sustainable cash flows."
Edelweiss ARC’s Antony, referring to ships under construction at Bharati, said “there are a lot of low hanging fruits"—some of which are 90% complete, but a squeeze on working capital has halted completion and delivery of the vessels. Bharati has some 66 ships on order including interceptor/speed boats for Indian Coast Guard, Navy besides merchant ships.
Consequent delays in constructing the vessels have prompted fleet owners to cancel some of these orders and invoke bank guarantees worth ₹ 730.41 crore along with interest of ₹ 228.46 crore charged by banks and foreign exchange variation of ₹ 287.37 crore. Bharati is legally contesting the banks’ decision to pay on the invoked bank guarantees. Bharati, operating at just 10% of its capacity, has not paid its employees salaries and statutory dues for some months, too.
“Our immediate attention is to help the company complete these orders," Antony said. “If they are completed, the net inflow to the company will be as much as ₹ 3,000 crore. There is good interest from distressed funds to extend finance based on cash flows. We are looking for additional funding on a priority/senior debt basis."
Getting more funds could be tough for Bharati, said a former employee now working in the financial services sector in Mumbai. “Nobody wants to pump more money into Bharati," said an executive at the Bangalore office of Syndicate Bank.
Kapoor and Kumar, now at the mercy of ARCs, even risk losing control of the firm they co-founded in 1973 after a stint with state-owned Mazagon Dock Ltd, India’s biggest warship builder.
ARCs have the same rights as banks and can sell the assets/securities to recover money. In case additional funding is not forthcoming, the ARC could strip the assets of Bharati or bring in a private equity investor or a new management to run it.
“It’s up to the ARC to see whether it can revive the company by bringing in a private equity investor or a new management," the Syndicate Bank executive mentioned earlier said.
“Revival is the only option to maximise recovery of bank dues," Antony said.
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