Mumbai: In a new twist to the corporate battle for a controlling stake in India’s largest offshore oilfield services firm Great Offshore Ltd, ABG Shipyard Ltd, which had sold almost its entire stake in the company before its public offer for buying shares opened, may end up owning at least 16% stake, a person familiar with the development said.

Stake issues: A file photo of ABG Shipyard in Surat, Gujarat. ABG sold its stake in Great Offshore ahead of the open offer as it could not match Bharati Shipyard’s offer of a higher price. Ashesh Shah/Mint

Bharati Shipyard Ltd, its rival that owns 23.17% in Great Offshore, has received shares representing a 27.65% stake in Great Offshore. At Rs590 a share, India’s second largest private ship maker was looking to buy a 20% stake.

The offer for buying Great Offshore shares opened on 3 December and closed on 22 December.

Dhananjay Datar, ABG’s chief financial officer, declined to comment on the development, saying, “We will know about how many shares are tendered to us only on 8 January. Till then, I cannot comment on this matter."

An executive of Kotak Mahindra Capital Co. Ltd, the investment banking arm of Kotak Mahindra Bank Ltd that advised ABG Shipyard for the deal, neither confirmed nor denied the development.

ABG was holding an 8.27% stake in Great Offshore but just before the open offer it sold the stake at an average price of Rs576 a share to Edelweiss Finance and Investments Ltd, ECL Finance Ltd, Carmona Investment and Finance Pvt. Ltd and a few others. These shares were bought at Rs450-480 apiece.

ABG sold its stake ahead of the open offer as it could not match Bharati Shipyard’s offer of a higher price. For all practical purpose, it withdrew from the race for Great Offshore even though its open offer technically remained valid.

Following the open offer, Bharati Shipyard will now have 43.17% stake in Great Offshore and ABG Shipyard 16%. With 16%, ABG Shipyard cannot have the management control as under the Indian company law, a stakeholder needs at least 26% to block any special resolution at the board level.

“If indeed ABG Shipyard has got 16% stake in Great Offshore, it will have to spend about Rs310 crore. As ABG Shipyard cannot reject those shares, it will become an expensive proposition for the company," Kunal Lakhan, an analyst with domestic brokerage KR Choksey Shares and Securities Pvt. Ltd told Mint.

“ABG Shipyard has the option of either keeping those shares with itself for some time or to sell it in the open market. It can also sell it to Bharati Shipyard or some financial institutions," Lakhan said.

Another analyst said it could sell a little less than 15% to any private equity fund that has been looking for a toehold in this business. Under the Indian takeover norm, any investor that buys a 15% stake in a company needs to make an open offer for another 20%.

The shares of Great Offshore rose 0.30% apiece on the Bombay Stock Exchange (BSE) to close at Rs465.55 on Tuesday even as the exchange’s benchmark index Sensex rose 0.73% to close at 17,686.24.

ABG Shipyard’s stock was up by 0.64% to close at Rs213.15 and Bharati Shipyard’s shares lost 0.43% to close at Rs231.55.

Between 4 December and 18 December when the open offer was on, Great Offshore’s share price moved between Rs508 and Rs514, giving a clear spread for arbitrageurs.

The offer price of Bharati Shipyard at Rs590 was much higher than the market price but there was no guarantee that every share offered would be accepted as Bharati Shipyard was looking for only 20% stake and supply of shares outstripped the demand.

ABG Shipyard, in contrast, made an offer for 33% and hence here the chances of acceptance of shares offered for sale were higher even though the difference between the market price and the offer price was slim.

A Mint analysis of delivery volumes of Great Offshore shares between 4 December and 18 December shows that delivery-based trading sharply rose during this period. From around 40% of total shares traded, delivery volumes on the stock shot up to 89% during this period on BSE. At least 1.81 million shares were delivered out of the 2.07 million shares traded.

On the National Stock Exchange delivery volumes rose to 71.5% from around 30%. At least 2.37 million shares were delivered during this period out of the total 3.28 million shares traded.

The rise in delivery-based trade signifies that investors bought shares to participate in the open offer.

SBI Capital Markets Ltd is advising Bharati Shipyard, which has invested Rs322.32 crore to acquire 23.17% in Great Offshore. At Rs590 a share, it will have to spend another Rs462 crore to raise its stake by 20%.

“It is unlikely that Bharati Shipyard will go for another open offer as it merely needs 7-8% to get 51% stake. It may not go for another open offer as that will force the company to buy additional 20%. Bharati Shipyard may appeal to Sebi (Securities and Exchange Board of India) to gain management control at a later stage," Lakhan of KR Choksey said. Executives at Bharati Shipyard said the company has not yet chalked out its plan for future course of action. It is in the process of making a presentation to Great Offshore for proportionate representation on its board.

The battle for Great Offshore started in May 2009 when Bharati Shipyard acquired a 14.98% stake in Great Offshore at Rs315 a share after its promoter Vijay Sheth forfeited shares pledged with the company. On 4 June, Bharati Shipyard made an open offer to buy from shareholders for additional 20% stake at Rs344 a share. ABG Shipyard joined the fray soon, prompting Bharati Shipyard to raise the open offer prices many times.