Mumbai: On Saturday, Vijay Sheth, former promoter of Great Offshore Ltd, made a rare public appearance—his first since he forfeited his stake in a company he had built from the ground up.
Sheth’s presence with son Rishabh in the front rows of a roadshow ahead of the latest round of government auctions of oil and gas exploration blocks—the so-called new exploration licensing policy (Nelp-8)—set off speculation that he is trying to find his way back into an industry that continues to grow.
Great Offshore provides services such as drilling, marine construction and logistics support by air and ocean to oil and gas explorers.
Second innings? Former Great Offshore promoter Vijay Sheth.
At the roadshow, Sheth declined to discuss his future plans, only saying that he would talk at an “appropriate time”. Later, he was seen introducing his son to senior executives of Oil and Natural Gas Corp. Ltd and Reliance Industries Ltd, two of Great Offshore’s biggest customers.
Sheth had to give up control of Great Offshore in May after the aggregate value of shares he had pledged with lenders fell below the loans he had taken to, ironically, build his equity stake in the firm.
He had created Great Offshore as a division of Great Eastern Shipping Co. Ltd, promoted by the Sheth family before it was spun off as a separate company in 2006.
On 7 May, Bharati Shipyard Ltd acquired the shares pledged by promoter Sheth, equivalent to a 14.89% stake in the company, at a price of Rs315 per share. Sheth resigned as vice-chairman and managing director on 29 May.
Also See Staking Claim (Graphics)
On 4 June, Bharati made an open offer to buy from shareholders additional shares amounting to at least a 20% stake in Great Offshore at Rs344 a share. On 23 June, less than a month after Sheth stepped down, Great Offshore became a keenly sought acquisition target, when another of India’s leading ship makers, ABG Shipyard Ltd, made a counter open offer of Rs375 a share.
Bharati, which was Great Offshore’s principal vendor for building vessels and rigs, already has 19.47% stake in the company, including 14.89% of Sheth’s stake that he had pledged with it. However, ABG has already raised its open offer price twice, indicating that the battle for control of Great Offshore is still wide open.
ABG has a 7.87% stake in Great Offshore.
If anything, Sheth’s loss has been his former shareholders’ gain: The company’s shares, which were trading at Rs295.45 the day Sheth lost his stake, closed at Rs534.50 on Tuesday on the Bombay Stock Exchange, an increase of 81%. The exchange’s benchmark Sensex index has risen 24.40% in the same period.
People who know Sheth well because they have done business with him in the past say they are certain that he will make a comeback. Most of them didn’t want to be identified.
“Offshore oil and gas services business is like a Test match. There is always a second innings,” said Rajeev Kashikar, managing director and chief executive of König and Cie Asia Advisors Pvt. Ltd, and who has in the past done business with Sheth.
Some of the people Mint spoke to said Sheth could launch a venture in association with an overseas joint venture partner or seek funding from a private equity partner.
“He (Sheth) is good at offshore business, he floated (the) offshore division in Great Eastern Shipping. So it is (only a) matter of time, he will come back to the same field. It may be with the help of other investors,” said a shipping industry executive who did not want to be identified.
A Mumbai-based consultant who has known Sheth for at least a decade said Sheth has a wealth of experience in the offshore business.
“Though it looks tough to find an investor at this point of time, Sheth will make a re-entry into this sector,” added this person who did not want to be identified.
Close associates of Great Eastern Shipping—India’s largest private shipping company controlled by Bharat and Ravi Sheth, cousins of Vijay Sheth—and Great Offshore believe the demerger was, in hindsight, a wrong move.
Vijay Sheth originally had an equity stake of 3% in Great Offshore and agreed to buy out the stake of the other Sheths, adding up to 18%.
When the two companies split, the debt-equity ratio of Great Offshore, according to the consultant, was a conservative 1:1.
The company had loans of about Rs500 crore, which soared to Rs1,800 crore after Sheth took charge. The cardinal principles of conservatism practised at Great Eastern Shipping were given a miss, as Sheth “over-leveraged”, said a second shipping industry executive who did not want to be named.
Sheth’s problem was that he was very ambitious and he couldn’t assess the risk involved, this person added.
However, being in the business for two decades has its benefits and, according to Kashikar, Sheth has valuable relationships in the business.
“Maybe Sheth went too aggressive when the market was booming. But he could not withstand the downturn and everything went wrong,” added the second shipping executive.
He will certainly come back soon, this person said.
Graphics by Paras Jain / Mint