BackBharati Shipyard’s expensive buy
Bharati Shipyard’s expensive buy
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On the one hand, rival ABG Shipyard Ltd has announced a counter-offer for Great Offshore’s shares at Rs375 per share, higher than Bharati’s original offer of Rs344 per share. Besides, Bharati has gone ahead and acquired a 4.58% stake in the company for Rs68.5 crore, at an average Rs403 per share. It has also said that it will increase its bid price for the open offer. Given the likelihood that ABG Shipyard would follow suit, there could well be a bidding war and the final acquisition price could be much higher.
It’s not surprising then that Bharati Shipyard’s shares fell 5% on Tuesday.
The primary concern about the rising cost is that all of it would have to be funded through expensive debt. A successful open offer would mean that the company’s gearing would rise even more at a time when the shipping industry is going through a downturn.
The offshore oilfield services provider space is seen as a good hedge against the downturn in the shipbuilding industry owing to the global financial crisis. Both ABG and Bharati are struggling to get new orders for building ships. Once the current order books are exhausted, these firms could face a huge crisis. Control of an offshore services company will certainly help in this regard.
Besides, with global crude prices again hovering around $70 (Rs3,423) per barrel, oil exploration has again become lucrative for firms, leading to demand for support vessels used to hunt for oil. Great Offshore currently runs a fleet of about 40 ships of various types used to support offshore oil drilling operations. About 30 of these are very old and have to be decommissioned. Great Offshore would have to replace these old ships to retain its market share and this could be a huge source of captive business for ABG or Bharati in the long run. In addition, there is also the potential of repairing the company’s ships.
As pointed out earlier, the major concern is the high debt involved in the transaction since Great Offshore. Given this concern, it’s surprising that Bharati Shipyard’s shares have risen by about 261% from their lows in March this year.
Write to us at marktomarket@livemint.com
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