Bangalore: Bharati Shipyard Ltd, India’s second biggest private shipbuilder, recently loaned Rs200 crore to Vijay Sheth, the managing director of Great Offshore Ltd, against a pledge of shares, triggering speculation of a possible open offer.
The arrangement raised a few eyebrows because Bharati is currently building a jack-up oil drilling rig and a multi-purpose offshore support vessel for Great Offshore worth Rs1,200 crore. Bharati said in a statement on Wednesday it had “no intentions to acquire/pledge more shares of Great Offshore or of making an open offer for acquisition of shares of Great Offshore”.
P.C. Kapoor, managing director of Bharati Shipyard, in an emailed interview, defended the company’s decision to loan the money against a pledge of shares by Sheth, saying it was in the interest of the shareholders. Edited excerpts:
Pledging shares: Managing director of Bharati Shipyard P.C. Kapoor.
What led Bharati to lend Rs200 crore to Great Offshore against a pledge of shares by Vijay Sheth?
We have given loan to holding companies of promoters of Great Offshore against the pledge of 14.9% of their shareholding in Great Offshore. While I would not like to get into the specific numbers, we have given loans considering our long business association and to further our business interests.
We are manufacturing offshore vessels, and Great Offshore operates these offshore vessels. The interest of Bharati Shipyard and its shareholders will be adversely affected if there is any change in the management structure of Great Offshore.
In effect, Bharati has used the company’s money to bail out Vijay Sheth. Bharati has given Rs200 crore to Sheth against shares whose value is much less at current market prices than the shares pledged. Isn’t this a violation of shareholder rights?
Bharati has lent money to ensure that its business interests are not adversely affected as a result of any possible change in the management of Great Offshore. It was a business decision to give the loan with the security pledge of 14.9% shares of the Great Offshore.
The intrinsic value of Great Offshore is sufficient to cover the advance given by us. The loan is given to protect the interest of the shareholders of Bharati Shipyard Pvt. Ltd.
Doesn’t this infringe on good corporate governance?
This is a business decision taken in the best interest of shareholders.
What are the terms of the deal on repayment, interest rates, etc.?
The loan has been advanced at commercial interest rates.
How many vessels has Bharati built for Great Offshore so far?
Currently, Bharati Shipyard has two orders—a rig and a multi-purpose support vessel (total order value Rs1,200 crore)—pending for delivery to Great Offshore. Over a period of last decade, we have built and delivered 16 ships to Great Offshore.
When is the jack-up rig due for completion?
We shall deliver by March/April 2009.
Is there a buy-back involved in this deal? If so, what are the terms?
The question does not arise as it’s only a pledge.
Can you name the two units of Bharati with which the shares of Great Offshore have been pledged?
The shares of Great Offshore have been pledged with Vishudh Urja Pvt. Ltd and Advitiya Urja Pvt. Ltd, both wholly owned subsidiaries of Bharati Shipyard.