Bangalore: Troubles continue for Vijay Sheth, the embattled promoter of Great Offshore Ltd.
The vice-chairman and managing director of the Mumbai-based offshore oilfield services firm lost ownership of his firm to Bharati Shipyard Ltd earlier this month, after losing the shares he had pledged for loans.
Great Offshore also said state-owned Oil and Natural Gas Corp. Ltd cancelled a five-year contract worth $266 million (Rs1,263.5 crore) after it failed to deliver a shallow-water drilling rig—the first to be built at an Indian yard—in time, Mint reported on Friday. Great Offshore had hired Bharati Shipyard to build the rig. The oil explorer also encashed a bank guarantee of around $3.8 million.
Now, a consortium of banks led by Axis Bank Ltd and including France’s Natixis Bank, that had lent Rs600 crore to Great Offshore to build the rig, has started probing the firm’s ability to repay the dues.
“We are not pressing the trigger immediately,” said an executive at Axis Bank. “Great Offshore is a good company. We would like to give an opportunity to the firm to find out what are the options and proposals they have on employing the rig. After all, the ONGC contract was a major comfort factor in deciding on lending the money.” The bank official didn’t want to be named because of company policy on speaking to the media.
Natixis Bank, a French corporate and investment bank, had disclosed in December that it had lost at least $650 million in the Bernard Madoff investment swindle on Wall Street. The youngest bank in France, created in 2006, posted a €1.8 billion (Rs11,592 crore) first quarter loss, triggered by toxic assets.
In cases related to project funding, the lending banks can give 30 days notice to the borrower firm, asking it to cancel the contract with the shipyard, encash the bank guarantee given by the yard and return the money. Alternatively, the lender can ask the borrower to return the money by raising a fresh loan.
“We are yet to take a decision on this,” the Axis Bank executive said. “We are in talks with Great Offshore to try and understand the options they have on employing the rig. We have commissioned a study on this. If we are not satisfied with their plans, then we will look at ways to take care of our interests.”
A final decision would be taken soon, he added.
Great Offshore, however, said it had no plans to cancel the rig-building contract with Bharati Shipyard. “We are not looking to cancel the contract,” a company spokesman said.
He added that the firm would take delivery of the rig when it is completed in November, and that it is looking at potential customers, including ONGC, to rent out the rig to. The company potentially faces a two-year exclusion from future auctions of ONGC.
“We are considering that,” said an official in the drilling unit of ONGC, who didn’t want to be named. “It’s a discretion that we have.”
A person familiar with the developments said Great Offshore has started lobbying with ONGC to avert a possible exclusion from its future rig tenders. Mint could not independently verify this.
Given the specification and type of rig under construction, Great Offshore can operate the rig only in shallow waters off India’s coast for potential customers such as ONGC, Gujarat State Petroleum Corp. Ltd, Hardy Oil and Gas Plc and Cairn Energy Plc.
“Globally, this type of rig is not much in demand,” an industry expert said. “Moreover, the huge cost involved in taking the rig to overseas locations would make the day rates uncompetitive.” He, too, spoke on condition of anonymity.
Even though the daily rental rates for rigs have softened from 2007 levels, Great Offshore says its rig can earn an operating profit even in today’s market. On Tuesday, shares of Great Offshore fell 1% to close at Rs284.05 on the Bombay Stock Exchange, on a day the overall market ended flat. Bharati Shipyard shares declined 8% to Rs118.50.