Mazagon Dock, Pipavav to jointly build warships, submarines

Mazagon Dock, Pipavav to jointly build warships, submarines

Mumbai/Bangalore:Pipavav Defence and Offshore Engineering Co. Ltd, formerly Pipavav Shipyard Ltd, plans to list on foreign bourses after it was picked by state-run Mazagon Dock Ltd as its joint venture partner to build warships for the Indian Navy.

“We have plans to list our company overseas. We are in the process of appointing an investment banker for the same," chairman Nikhil Gandhi said.

The joint venture, announced on Monday, will float an independent company to be named Mazagon Dock Pipavav Ltd.

“We both will be bringing in equity, but the necessary shareholder agreements are yet to be finalized. This company will be executing the current order book of Mazagon Dock worth Rs1 lakh crore (Rs1 trillion) and look for new orders jointly," Gandhi said.

Pipavav Defence owns India’s biggest dry dock used for building and repairing ships and has a licence from the government to build warships.

The company proposes to convert an existing wet dock into a second dry dock to enhance its capability to build warships for the Indian Navy and the export market, according to a recent company presentation to investors.

The Indian Navy’s submarine programmes, dubbed Project 75 and 76, involve building 24 submarines at an investment of $14-16 billion (Rs65,000-75,000 crore) by 2025-30.

Of these, India has ordered six Scorpene-class submarines from French firm Direction des Constructions Navales Services (DCNS) for $3.5 billion.

The deal, signed in October 2005, includes a licensed production of submarines in India under a technology transfer agreement, which was awarded to Mumbai-based Mazagon Dock. The defence shipbuilder was contracted to deliver one submarine a year beginning 2012. It takes a minimum of six years to build a submarine.

The Scorpene submarine project is delayed.

“Mazagon Dock is restricted in size," said B.S. Randhawa, a former chief of material and controller of warship production and acquisition at the Indian Navy. “They can build ships up to about 7,000-8,000 tonnes. Also, their track record of building ships is slow because of the limited facilities."

Mazagon Dock has started receiving orders for large ships of 150-160 m in length from the Navy, but it doesn’t have the place within its premises to assemble such ships. “So, Mazagon may have to sub-contract some of the work, get some parts made in other yards that have the capacity and capability to increase the rate of production," Randhawa said.

“Mazagon can also build some part of the ship within its own premises, take it to Pipavav, integrate it there, then assemble and deliver the ship," he added.

Vice Admiral H.S. Malhi, chairman and managing director of Mazagon Dock, was not immediately available for comment on the joint venture. His office said Malhi was abroad on an official visit.

An executive at the state-run defence shipyard said the joint venture will jointly bid for warship tenders issued by the government.

“We will share little bit of our work with Pipavav for expediting or meeting our timelines for warship projects by utilizing the extra capacity available at Pipavav," he said on condition of anonymity. “But the joint venture will not get into submarine production."

Mazagon Dock had run a process to find a JV partner and floated a so-called expression of interest in this regard in February, which attracted all top shipbuilders in India.

“The question is how best we can use the capacity of both yards. For instance, a project that Mazagon could have completed in 13 years, the joint venture can complete in seven years."

“Mazagon had lost out some big projects to Cochin Shipyard Ltd due to lack of infrastructure. Now with this joint venture, we will fast-forward all execution programme of Mazagon Dock by using Pipavav’s facility. And we will also consider exporting war ships to friendly countries," Gandhi said.

He added that Pipavav Defence received proposals in April from “ some global firms" to buy a 26% stake in the start-up yard. “They are in the process of getting necessary regulatory approvals from their respective countries. We are also doing the same with our regulatory authorities," Gandhi said without disclosing the names of the global firms that has evinced interest in taking a stake in Pipavav Defence.

Pipavav is currently executing orders worth a combined $1.5 billion, with defence work accounting for some 42% of the total value.

But the company has slipped on delivery schedules, which last year forced a global fleet owner to cancel one of the ships it had ordered.

“We have 18 ships under construction. As far as delivery is concerned, we are on track with two ships undergoing sea trails," Gandhi said.

Pipavav shares gained 11% to end at Rs91.00 apiece on the Bombay Stock Exchange on Monday, while the Sensex dropped 2.17% to 16,501.74 points.