Bangalore: India’s biggest shipbuilder under state control, Cochin Shipyard Ltd, will likely get a valuation boost after receiving orders for four vessels from government-owned Shipping Corp. of India Ltd ahead of a proposed initial public offering (IPO) of shares.
Cochin Shipyard, fully owned by the government, received the orders at a time when competing shipyards are struggling for orders during the global slowdown.
Valuation boost: A shipbuilding unit at Bhavnagar, Gujarat. Cochin Shipyard has the backing of the shipping ministry to launch a public issue for funding expansion costing Rs800-1,000 crore. Amit Dave / Reuters
“New orders are not coming. So we need to keep the yard occupied,” said a shipping ministry official. He did not want to be named as he’s not authorized to speak with the media.
On 4 June, Shipping Corp., India’s biggest shipping company, signed a contract with Cochin Shipyard for building two anchor handling, towing and supply vessels. The contract has an option for two more similar ships. On 9 July, Shipping Corp. signed another deal for two platform supply vessels with Cochin Shipyard. The four ships are meant to support oil exploration activities along the coast.
“The new orders will definitely boost valuations of Cochin Shipyard,” said an analyst with a Mumbai-based brokerage. He, too, didn’t want to be named.
Cochin Shipyard is one among a list of state-run firms identified by the government for an IPO. The yard already has the backing of the shipping ministry to launch an IPO to fund an expansion plan worth Rs800-1,000 crore.
Money raised through an IPO will go to the company and that from a secondary share sale to the government.
An IPO would make Cochin Shipyard the first state-owned shipbuilder to be listed on the bourses.
“The government can piggyback on the IPO to sell its shares in the market,” the shipping ministry official mentioned earlier said.
In the year to 31 March, Cochin Shipyard did not win a single new shipbuilding order while ABG Shipyard Ltd, the country’s biggest private shipbuilder, received orders for seven ships valued at Rs3,290 crore.
A bulk of this order by value came from Essar Oilfields Services Ltd, a unit of the diversified Essar Group, for constructing two offshore oil drilling jack-up rigs costing Rs2,400 crore.
In the same period, ABG Shipyard’s closest rival, Bharati Shipyard Ltd, won orders for 16 ships valued at Rs574.39 crore, including a Rs281.23 crore order in March from India’s Coast Guard for 15 interceptor boats.
With Shipping Corp.’s orders, Cochin Shipyard’s order book will swell to 20 ships estimated to cost Rs5,000 crore.
More than half the value is made up by the Indian Navy’s order for an air defence ship, India’s first indigenous aircraft carrier.
Executives at both Shipping Corp. and Cochin Shipyard declined to disclose the value of the four ships ordered.
“We are not disclosing the value of the four ships for various reasons,” said U.C. Grover, a director overseeing technical and offshore services at Shipping Corp. “Between SCI and Cochin Shipyard, we have decided to keep the ship value confidential.”
N.M. Paramesh, finance director at Cochin Shipyard, said “the discussions on the value of the four ships are going on; it has not been finalized yet.” Several industry executives contacted by Mint said these four ships could be worth at least Rs600 crore.
“In the wake of the current economic crisis, global shipyards are facing a dearth in new ship orders,” said CARE Research, a unit of Credit Analysis and Research Ltd, in a recent update on shipbuilding.
Globally, fleet owners are cancelling orders, renegotiating prices or delaying construction schedules because of poor funding, low freight rates and falling ship prices and to arrest excess capacity in the system.
“The world’s shipbuilders undoubtedly face difficult times between the delivery of the current inflated order book and a return to more normal ordering patterns,” Nigel Gardiner, managing director at London-based Drewry Shipping Consultants Ltd, says in a recent report, “World Shipbuilding Review and Forecast 2009-10”.
Drewry’s Gardiner says the current global order book, the biggest yet in history, is creating the danger of long-term over-supply in several, perhaps most, industry sectors. “The growth in sea-borne trade and ship demand in the next five years will absorb relatively small amounts of ships on order,” Gardiner says in his report.
India has 23 yards that are building about 250 ships, which together cost at least Rs25,000 crore, up from an order book of Rs816 crore in 2002. Based on the current order book, local yards will have business till 2012-13.
In addition to its existing yards, Cochin Shipyard is setting up a small shipbuilding division with an investment of Rs98 crore and had floated plans to build a second dry dock to construct bigger ships.
A dry dock is a narrow basin that can be flooded to allow a ship to be floated in, then drained to allow that ship to come to rest on a dry platform. Dry docks are used for the construction, maintenance and repair of ships and typically cost Rs800-1,000 crore.
The yard is also diversifying into building higher-end ships with diesel propulsion.