Mumbai: India’s second largest private shipbuilder Bharati Shipyard Ltd on Tuesday got its shareholders’ nod to raise the firm’s borrowing limit up to Rs7,000 crore from Rs5,000 crore and raise fresh equity.
The company is building a war chest to acquire the controlling stake in India’s largest integrated offshore services provider Great Offshore Ltd.
Seeking synergy: P.C. Kapoor, MD of Bharati Shipyard.
“We would need Rs468 crore to acquire another 20% in Great Offshore at Rs560 a share,” said P.C. Kapoor, Bharati Shipyard’s managing director, on the sidelines of the company’s 32nd annual general meeting.
Bharati has so far spent Rs305 crore to acquire 22.48% share in Great Offshore.
The country’s largest private shipbuilder, ABG Shipyard Ltd, is also in the race for Great Offshore, promoted by Vijay K. Sheth.
Both firms have raised their offers several times since May, when Bharati Shipyard acquired a 14.89% stake in Great Offshore after Sheth forfeited his shares pledged with Bharati Shipyard, which paid Rs315 each for the pledged shares.
Subsequently, Bharati has been buying shares from the market through negotiated deals.
Most recently, it bought a 3.01% stake in Great Offshore in mid-September taking its stake to 22.48%.
The average price for the deal was Rs558.81 a share, but the price paid for some shares was as high as Rs560 a piece.
Under Indian capital market laws, a firm that acquires at least a 15% stake in another firm needs to make an open offer to public shareholders of the latter for an additional 20% stake.
And the price at which the firm buys the target company’s shares from the market becomes the floor price for the open offer.
After the latest round of buying of Great Offshore shares, Bharati Shipyard raised its open offer price to Rs560.
ABG Shipyard seems to be in no mood to give up as yet. “We are certainly in the race; we will take an appropriate action at an appropriate time,” Dhananjay Datar,
ABG’s chief financial officer told Mint when asked whether his company would revise the open offer price.
If ABG does that, Bharati may counter. “We will take a call if ABG revises the offer. Great Offshore is not an expensive buy at Rs560 a share,” Bharati Shipyard’s Kapoor said.
Bharati does not necessarily have to go all the way to buy 20% stake. It can stop after it acquires another 3.52% stake in Great Offshore, taking its stake to 26%.
Under Indian corporate law, a 26% stake empowers a shareholder to block special resolutions.
According to Kapoor, Bharati Shipyard has Rs350 crore worth of fixed deposits with banks and can fund the Great Offshore acquisition through this and internal accruals.
“(The) shareholders have given permission for fund-raising. We are exploring all options, including rights issue, QIPs (qualified institutional placements or share sales to banks and finance companies) and other equity and debt instruments. We will be opting for a combination of these, though nothing has been finalized,” Kapoor said.
Capital market regulator Securities and Exchange Board of India (Sebi) has not yet given the go- ahead to the open offers made by Bharati Shipyard and ABG Shipyard.
“We are expecting Sebi to give us an approval in the next 10 days. It has asked fresh queries with revision of open offer prices,” Kapoor said.
Shares of Bharati Shipyard rose 2.23% on the Bombay Stock Exchange (BSE) on Tuesday to close at Rs203.65 each, while those of rival ABG Shipyard slipped 0.35% to close at Rs240.10 each.
Shares of Great Offshore rose 1.14% to close at Rs565 each even as the Sensex, BSE’s benchmark index, rose 0.96% to close at 16,852.91 points.
V. Kumar, another managing director of Bharati Shipyard, said the acquisition of Great Offshore is an opportunity for a forward integration in line with the strategy of European shipmakers.
“There are many shipbuilders who became shipowners in Europe through acquisition. Great Offshore will provide great synergy,” Kumar said.
According to him, his company has earmarked Rs100-150 crore for capital expenditure in 2010-11 and is awaiting a Rs277 crore subsidy from the government.
Kumar, however, declined comment on when his company would receive the subsidy.
The government offers a 30% subsidy to all shipyards for all export and domestic orders for vessels measuring more than 80m in length.