Bangalore: India’s second biggest private shipbuilder, Bharati Shipyard Ltd, has decided to make an open offer for an additional 20% of the shares held by the public in Great Offshore Ltd, an offshore oilfield services firm in which it acquired a 14.89% strategic stake on 8 May to become its largest shareholder.
The board of Bharati Shipyard, at a meeting held on 30 May, decided to make a public announcement in terms of the Sebi (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, for acquisition of additional shares in Great Offshore, a company statement said on Sunday.
Looking ahead: P.C. Kapoor, managing director of Bharati Shipyard.
The announcement will be made by Bharati Shipyard through its wholly owned subsidiary, Natural Power Ventures Pvt. Ltd.
The shares will be acquired at a price determined as per the applicable Securities and Exchange Board of India (Sebi) guidelines on the date of making a public announcement, the statement said.
“The purpose of the open offer is to consolidate our investment in Great Offshore. Considering the potential of offshore services business, we have decided to increase our investment in Great Offshore. This acquisition would provide enhanced stability to the existing management in Great Offshore and maximize shareholder value for both companies,” P.C. Kapoor, managing director of Bharati Shipyard, said.
In a separate yet related development, Vijay Sheth resigned as vice-chairman and managing director of Great Offshore, 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. “Vijay Sheth has resigned as vice-chairman and managing director of Great Offshore with effect from Saturday,” a company spokesman said.
Following the share acquisition by Bharati in May, Vijay Sheth had become the first promoter in India to lose control over his company because of the shares he had pledged for loans. Sheth had pledged the shares with two subsidiaries of Bharati in December for a Rs240 crore loan. When the loan was not repaid, Bharati decided to invoke the pledge and acquired the shares at Rs315 a share, taking its stake in Great Offshore to 14.89%. Sheth is now left with just a 0.84% stake in Great Offshore. His cousins Bharat Sheth and Ravi Sheth of Great Eastern Shipping, hold around a 5% stake in Great Offshore.
Fourteen of Great Offshore’s fleet of 41 offshore vessels were built at Bharati Shipyard. It is also constructing two more offshore vessels for Great Offshore—a jack-up oil drilling rig and a multi-purpose offshore support vessel—together costing about Rs1,200 crore. The completion date of both the vessels have 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 ONGC Ltd.
Bharati says that the construction of the rig, the first to be built at an Indian yard, will now be completed sometime in November/December.
As the rig was not completed and handed over on time, ONGC decided to cancel the five-year contract worth $266 million. The oil firm also encashed a performance bank guarantee of $3.8 million given by Great Offshore.
After ONGC cancelled the contract, a consortium of banks led by Axis Bank Ltd and France’s Natixis SA, that had lent Rs600 crore to Great Offshore to build the rig, started probing the firm’s ability to service and repay the debt.
Analysts were not expecting an open offer from Bharati because the proportion of shares acquired in early May was just under the 15% that makes an open offer for purchase of additional shares mandatory according to Indian law.
The open offer gives the impression that Bharati is “getting more aggressively into the offshore services business as orders for building new ships, Bharati’s core business, have reduced to a trickle following the global slowdown,” said a Mumbai-based analyst who didn’t want to be named.
Three experts Mint spoke to said that offshore oil services business will start picking up if crude price stabilize at about $60-70 a barrel. The price for the benchmark brent crude has plunged to below $40 a barrel in March from an all-time high of $145.66 a barrel on 3 July last year. Since then, the crude price has started inching up.