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Shipbuilders go through grim scenario; Cochin Shipyard IPO to open on Aug 1

Buyouts, realignments bringing no change; govt defence deals new focus area for major players

Aditi Divekar  |  Mumbai 

ABG Shipyard has been unable to deliver orders because of lack of working capital
Representative image

Realignments in the domestic shipbuilding industry over the past four years have not improved business prospects for key players in the sector. While state-owned Cochin Shipyard is coming up with its initial public offering, August 1 to August 3, efforts made by private shipbuilders to revive their businesses have been largely in vain.

“The government is trying to boost the domestic for some time now. It is due to this IPO that the sector has come into the limelight,” Hitesh Avachat, deputy manager, CARE Ratings, said. “Otherwise prospects for the shipbuilding industry continue to remain dull in the short to medium term.” 

Cochin Shipyard, the country’s largest public sector shipyard, will see a 10 per cent disinvestment by the government and a 20 per cent fresh issue of shares. After this IPO, the government will have a 75 per cent shareholding while the balance 25 per cent will be held by the public. 

Domestic private shipbuilders continue to grapple with the grim business climate despite restructuring. For instance, debt-laden Defence and Offshore Engineering, which was acquired by Anil Ambani-led Reliance Infrastructure in 2015, is seeing operational losses for the last two years.

Analysts, however, are of the view that buyouts in the sector are largely distress buys and do not signal any positive business outlook.

ABG Shipyard, on the other hand, is struggling to get a buyer. Though the company is currently in talks with UK-based Liberty Group, the latter is not the first buyer that has come to Germany-based Privinvest Holding had been in talks with the company, but nothing materialised. Debt-laden ABG is among 12 identified by the Reserve Bank of India (RBI) for being referred to the National Company Law Tribunal (NCLT). 

Domestic private shipbuilders have realigned their business models to cater for government-funded defence contracts, as orders for commercial vessels have dried up amid oversupply.

Commercial shipbuilder Bharati Shipyard even got its name changed to Bharati Defence and Infrastructure to reiterate its business focus. 

China is the largest shipbuilder and is known for low-cost, high-volume shipbuilding. It is followed by South Korea and Japan, which took over from Europe decades ago. Though the shipbuilding industry in India does not feature among the top shipbuilding nations, the sector is expected to thrive on increased defence orders from the government in the coming years.

“Domestic shipbuilders have also moved into the shipping services segment by offering maintenance services of vessels. This too has not helped them because vessel owners are so cash-strapped that even maintenance is not affordable at this juncture,” said Avachat.

Industry officials were of the view that equity infusion is perhaps the only option for the sector because any effort done operationally will come at a cost and none (shipbuilder or ship-buyer) is in a position to bear the cost in the current business climate.

First Published: Wed, July 26 2017. 02:06 IST