ABG Shipyard gets three suitors, lenders want it out of debt recast
Mumbai: Reliance Defence and Engineering Ltd, Shapoorji Pallonji Group and Liberty House Group of UK have shown interest in buying debt-ridden ABG Shipyard Ltd, even as its lenders try to force the ship maker out of a debt recast mechanism and recover their dues.
Investment banking firm Rothschild is advising the company on its sale plan, while SBI Capital Markets Ltd is helping it invite bids from interested parties.
In a written reply to a query, Dhananjay L. Datar, executive director at ABG Shipyard said these requests to buy a controlling stake are currently under consideration with the lenders.
“We have received preliminary interest from Reliance Defence, Shapoorji, M/s Liberty House, UK. These requests are under consideration with lenders. Lenders and SBI Caps (SBI Capital) will be calling for proposals from prospective investors and the process will kick in,” Datar said.
ABG Shipyard has been reported to be in talks with strategic investors for a while. In April 2016, Mint had reported that lenders who had invoked the strategic debt restructuring (SDR) in ABG Shipyard in December 2015 were in talks with a Vietnamese financial investor.
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When contacted, Reliance Defence spokesperson denied having any interest in ABG Shipyard. Email and calls to Liberty House Group remain unanswered
“We regularly evaluate opportunities in the port and marine infrastructure space which are brought to us. However, there is no proposal from us at this stage on the aforesaid asset,” said Shapoorji Pallonji & Co Ltd.
Even as the process of finding a strategic partner continues, lenders led by ICICI Bank Ltd have decided to declare the company as a ‘failed exit’ from the corporate debt restructuring (CDR) cell, an official from one of its large lenders said. A failed exit means the restructuring did not work, and the lenders could look at recovery options such as winding up the company or selling it to an asset reconstruction company (ARCs).
“Lenders are now getting impatient. We have already started the process of looking at legal procedures including (filing a) winding-up petition to recover our dues. Most banks have declared the account as a non-performing asset. To that effect, there is no material impact if the company exits CDR,” the official mentioned above said, speaking on condition of anonymity.
If ABG Shipyard cannot finalize a strategic partner and lenders sell it to an ARC, it would be the second such case. In June 2014, Edelweiss Asset Reconstruction Co. bought Bharati Shipyard from its lenders and renamed it Bharati Defence and Infrastructure Ltd to improve its focus on defence ships.
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Under a CDR process that started in March 2014, lenders led by State Bank of India agreed to rework the Rs11,000 crore loans, offered a two-year moratorium on interest payment, reduced borrowing cost and extended the repayment period. In August 2016, the board of ABG Shipyard approved the strategic debt restructuring scheme proposed by lenders, which enabled them to convert some part of the debt into equity, giving them a controlling stake. The proposal, however, was rejected by the shareholders of the company. However, ICICI Bank converted its compulsorily convertible preference shares into equity, and secured an 11% stake in the company.
The company, however, remains confident of a turnaround.
“We do not see red in the actions that lenders have initiated. These are part of formalities that they will have to do from time to time. However, we and lenders are on the same page as far as a long-term solution for ABG is concerned,” said Datar.
“Once the investor and partner for ABG is finalized, the solution to debt is in sight. The yard can make a turnaround pretty quickly as the facilities of the yard are world-class. There are inventory which can be built and sold in a short time to support turnaround and transformation,” he said.
Declaring ABG Shipyard as a failed exit could allow speedy resolution of the case, an expert said.
“CDR exit is a natural evolution as it will put pressure on the management to either repay the dues or find a buyer,” said Nirmal Gangwal, managing director and founder, Brescon Corporate Advisors (P) Ltd.
ABG Shipyard was hurt by an industry slump as freight rates declined along with global trade, worsened by a domestic downturn. Its CDR is among the largest loan recasts in India, second only to the Rs13,500 crore debt reorganization for engineering and construction firm Gammon India in July 2013.
“All the four shipyards lost majority of their global order book steadily from 2011 onward as prices of ships kept falling. Buyers cancelled orders and took their money back, leaving behind large unfinished ships with the yard. This resulted in shipyards facing large working capital needs. This was the point where shipyards needed support of lenders. However, the support never came at the right time,” Datar said.
In the March quarter of 2016, the company had posted a loss of Rs1,710 crore and had an outstanding debt of Rs16,000 crore. According to its latest shareholding pattern available on BSE, as on 30 September 2016, lenders held 50.46% stake in the company.
With international orders slowing down, ABG Shipyard is now pinning hopes on the defence sector. It is one among three companies (the others are Larsen and Toubro Ltd and Reliance Defence) to win licence to build warships from the defence ministry. According to the company’s presentation, the Indian Navy has an order pipeline of $30 billion which is expected to be executed in the medium term.