Banks to invite buyers for ABG Shipyard stake

Mumbai: Lenders to private shipbuilder ABG Shipyard Ltd have decided to issue a public notice inviting expression of interest (EOI) from buyers keen to pick up a controlling stake in the company, said two bankers familiar with the development, on condition of anonymity.

“We are going for an open process since it is more transparent and we will get a better sense of the valuation of the company this way,” said one of the bankers. “Initially when we were going through a closed process, we couldn’t find that many buyers. The discussions with the Vietnamese investors is still on, though we are doing this open process to see if any surprises come up.”

On 9 March, Mint had reported that the lending consortium was in discussions with a Vietnamese financial investor to sell a majority stake in ABG, after they invoked the strategic debt restructuring (SDR) provision in December. The consortium is led by ICICI Bank Ltd and State Bank of India (SBI).

“The banks are actively pursuing the possibility of a change of ownership and management of ABG Shipyard. Another option that banks are exploring is to sell the assets of the shipyard to recover their money. The banks are taking all steps to protect their interest and maximise value of their exposures,” said the second of the two bankers cited earlier.

“We do not comment on client-specific information. However, we would like to state that we explore all possible options including stake sale in companies to protect the bank’s interest,” an ICICI Bank spokesperson said.

An email sent to SBI on Friday did not yield any responses at the time of going to press. An email sent to ABG Shipyard on 30 March remained unanswered.

Lenders have been pushing for open processes in most large cases where they have invoked SDR so as to avoid undue attention from investigative agencies.

SBI has already started inviting interest in other cases where banks had decided to take over management control. In cases such as those of Electrosteel Steels Ltd, Adhunik Power and Natural Resources Ltd and Gammon India, the lead lender SBI on its own or through its arm, SBI Capital Markets Ltd, put up notices on 3 March, 10 March and 11 March, respectively, inviting EOIs to take over a majority stake in the companies.

An EOI is not a binding agreement or bid, which means that lenders do not necessarily have to auction the controlling stake to those who have shown interest. Once the EOI is in, the consortium would reach out to a suitable buyer and request a bid.

“The upside of an open process is that there is transparency in such deals and the valuation aspect is taken care of. However, there can be a short-term scare when lenders have to disclose all the debt numbers and the provisions that they have made,” said Vibha Batra, group head of financial sector ratings at credit rating firm ICRA Ltd.

Since March 2014, ABG Shipyard has been in the middle of a corporate debt restructuring (CDR), under which lenders led by SBI agreed to recast Rs.11,000 crore of loans, offered the firm a two-year hold on interest payment, reduced borrowing cost and extended the repayment period.

The firm was hurt by a slump in the industry as freight rates fell in step with a decline in global trade, combined with a domestic economic downturn.

On 12 June 2015, ABG informed stock exchanges that it received an EOI from Germany-based Privinvest Holding, which owned shipyards in Germany, Greece and the United Arab Emirates. However, the deal fell through, said the bankers cited earlier.

Syed Abdi, managing director and chief executive of ABG Shipyard, speaking on the sidelines of the Make in India event on 17 February, had said the firm was looking for an investor for its existing projects as it had a $2 billion order book.

ABG’s CDR was one of the largest loan recasts undertaken in recent years by India’s banks, second only to the Rs.13,500 crore debt reorganization for engineering and construction firm Gammon India in July 2013. Lenders to Gammon India invoked the SDR provision in November.

According to SDR norms issued by the Reserve Bank of India (RBI) in June 2015, banks can convert a part of a defaulting firm’s debt into majority equity and assume operational control. They will then have 18 months to find a buyer for at least 26% of this equity.

Since the SDR rules were introduced, lenders have converted debt to equity in a number of firms, including Electrosteel Steels, Ankit Metal and Power Ltd, Rohit Ferro-Tech Ltd, IVRCL Ltd, Gammon India, Monnet Ispat and Energy Ltd, VISA Steel Ltd, Lanco Teesta Hydro Power Pvt. Ltd, Jyoti Structures Ltd and Alok Industries Ltd.

The SDR provision is a way to give banks more room to resolve stressed assets which have piled up over the past few years. RBI has given banks time till March 2017 to clean up their books by recognizing stressed assets and providing for them.

Gross non-performing assets of the 39 listed banks surged to Rs.4.38 trillion in the quarter ended 31 December from Rs.3.4 trillion at the end of the September quarter, according to data collated by corporate database provider Capitaline.