A file photo of the Cochin Shipyard.
A file photo of the Cochin Shipyard.

Cabinet clears Cochin Shipyard IPO

Cochin Shipyard will issue an IPO to help fund a `600 crore expansion to construct larger sophisticated ships and undertake ship repairs and fabrication

Bengaluru: Cochin Shipyard Ltd, which is building the first entirely Indian-made aircraft carrier, will issue an initial public offering (IPO) to help fund a 600 crore expansion to construct larger sophisticated ships and undertake ship repairs and fabrication.

The planned share sale for INS Vikrant was approved by the cabinet committee on economic affairs on Wednesday. No time-frame was given.

The ship has the same name as India’s first aircraft carrier which was bought partly-built from British Navy in 1957 and decommissioned in 1997.

The IPO involves the sale of 34 million equity shares of 10 each translating into an equity capital of 33.984 crore of Cochin Shipyard. The offer comprises fresh issue of 23 million equity shares and the central government’s stake of 11 million shares.

Proceeds from the sale of new shares will be used by Cochin Shipyard to part-finance the setting up of an international ship-repair facility at nearby Cochin Port Trust as well as a new dry dock to facilitate the construction of larger ships and underwater repairs of rigs and semi-submersibles.

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 construction, maintenance and repair of ships.

“The approval for the IPO is a real shot in the arm," said Cochin Shipyard chairperson and managing director K. Subramaniam. “We need funds for expansion."

Cochin will be the first of India’s five state-run shipbuilders to be listed, allowing the firm to convert its worth into share value. There are three listed private sector shipyards in India—ABG Shipyard Ltd, Bharati Shipyard Ltd and Pipavav Defence and Offshore Engineering Co Ltd. L&T Shipbuilding Ltd, which runs a shipyard at Kattupalli in Ennore near Chennai, is not listed but is part of Larsen & Toubro Ltd, which is a listed company.

The only profit-making yard controlled by the shipping ministry, Cochin is building not only INS Vikrant, but also five fast patrol vessels for the Indian Coast Guard, a barge for Abu Dhabi’s National Petroleum Construction Corp and a technology demonstration vessel for the Defence Research and Development Organization (DRDO) of India.

“We are targeting to deliver the aircraft carrier in December 2018," Subramaniam said.

The global shipping and shipbuilding sector has been hit by the economic downturn of 2008, hurting Cochin Shipyard’s efforts to win new orders for commercial ships and forcing it to look at other areas for growth.

The expansion plan involves building a new dry dock, the firm’s third, to build very large ships like capesize bulk carriers, general cargo ships, aframax and suezmax tankers, panamax and post panamax type container ships, liquified natural gas carriers, oil drilling rigs, semisubmersible rigs, and better versions of aircraft carriers.

The existing two dry docks cannot be used for building large vessels; hence it is proposed to build a new dry dock, said a spokesperson for Cochin Shipyard.

Cochin Shipyard has signed a 30-year contract with adjacent Cochin Port Trust, also state-owned, to set up an international ship repair facility at the port. The facility will have a modern ship lift system to cater to small and medium sized ships.

“Ship repair is a very lucrative area. It is not cyclical like commercial shipbuilding. Perpetually, there will be ships to repair. We are targeting the repair facility aggressively," Subramaniam said.

The expansion also involves expanding its dry dock to allow the shipbuilder to repair oil drilling rigs.

Cochin Shipyard posted a net profit of 235 crore in the year ended March 2015 on a revenue of 1,859 crore.

The firm, India’s biggest state-owned shipbuilder by capacity, now has the capability to build vessels of up to 110,000 deadweight tons and repair ships up to 125,000 deadweight tons. Deadweight ton is a measure for the total weight-carrying capacity of a ship.