Sluggish markets hit shipbuilding firms’ fund-raising plans

Sluggish markets hit shipbuilding firms’ fund-raising plans

Bangalore: Two of India’s top shipbuilding companies, as well as a third that is constructing a new facility, may have to defer plans to raise money from the public to fund their projects due to sluggish market conditions.

“Nobody wants to touch the IPO (initial public offering) market now. It is for everyone to see," said Bhavesh Gandhi, vice-chairman of Pipavav Shipyard Ltd, the country’s newest shipbuilder that began constructing the first of a series of 26 ships worth Rs4,300 crore for French, Greek and Norwegian fleet owners early this year.

Pipavav Shipyard had received clearance in October from India’s stock market regulator Securities and Exchange Board of India, or Sebi, to raise as much as Rs800 crore by selling shares to the public through an IPO.

The shipyard, promoted by SKIL Infrastructure Ltd and Punj Lloyd Ltd, has time till December to launch the IPO. The Sebi clearance for public offerings is valid for three months.

“If we are not able to complete the IPO by December and the approval lapses, we will refile the prospectus and take fresh approval from Sebi," Gandhi said.

“We are waiting and watching for the good times. It is just a question of the markets getting charged up before we take the plunge," he added.

Gandhi said any delay in IPO would not impact the commercial shipbuilding project. “The current project is fully funded through debt and equity. The IPO was meant to raise additional resources to fund expansion plans to cater to offshore vessels as well as building and repairing ships for the Indian Navy," he said.

Poor market conditions have also nixed the plans of state-run Cochin Shipyard Ltd to sell shares to the public. “We will not be going for an IPO now," said an official at Cochin Shipyard who did not want to be identified.

The company, though, is proceeding with all the pre-IPO related work so that it can enter when the market picks up, the same official said.

Cochin Shipyard had recently received approval from the Union government to set up a small shipbuilding division with an investment of Rs98 crore. The company had also 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 around Rs800-1,000 crore.

Chennai-based ship owning firm Goodearth Maritime Ltd has also put off plans to raise money from the public, citing unfavourable conditions, said an executive at the company who did not want to be identified.

Goodearth Maritime has started work on putting up a new shipyard at Cuddalore in Tamil Nadu with an investment of over Rs2,000 crore.

“The company’s board has deferred IPO plans for now. We will revisit the plan at a later date," said the same executive.

Goodearth Maritime is now making use of the Rs265 crore it received from IDFC Pvt. Equity early this year to fund the project.

India has some 23 yards that are currently building about 250 ships valued at Rs24,000 crore.

The country’s shipbuilding capacity is projected to reach 4 million tonnes (mt) (cargo carrying capacity) by 2012 from the present 2.8mt and rise further to 19mt by 2017, aided mainly by cost competitiveness and availability of skilled and cheap labour, according to a recent industry-funded report prepared by KPMG Advisory Services Pvt. Ltd.

At this stage, India will have a 7.5% share of the global market, up from less than 1% now, said the report, which was submitted to the government.

Local firms had outlined plans to invest close to Rs20,000 crore over the next three-five years to build new facilities and tap the potential that prevailed till early this year when shipping and global trade were at their peak.

But the global credit crunch, the deteriorating economies in the West and the downturn in global shipping have put the brakes on the ship acquisition plans of global fleet owners, forcing local shipbuilding firms to trim their plans.

For instance, Larsen and Toubro Ltd (L&T), the country’s biggest engineering firm, has scaled down its earlier plan of setting up a Rs3,000 crore mega shipyard at Kattupalli in Tamil Nadu on the country’s eastern coast. The firm will now be investing only Rs1,800 crore to erect the yard with a capacity to build 12 ships in a year compared with 60 earlier.

“Because of the global meltdown, high cost of funds and slowing demand for new ships, we have pruned the capacity of the yard," said an executive at L&T who did not want to be identified.

“We can scale up the capacity later depending on the demand," the executive added.