ABG Shipyard to bring equal partner by mid-August

Company in talks with local as well as global players for strategic investment

ABG Shipyard, India's largest private shipbuilding company, would bring an equal partner in the business by mid-August, said a source. This is expected to help the debt-burdened firm focus on defence-sector orders.

"There are two roles to be played here. One of an investor, the other who has the technical know-how. We may have either one entity doing both roles or two entities carrying out the two roles. We are still in talks and are yet to decide that," an official of ABG Shipyard told the Business Standard.

The company is in talks with local and global firms for this investment, according to the official. "Once the investor comes in, it is going to be a joint management. Don't know whether one can call it a joint venture," the official said, when asked if the promoter would continue to hold a controlling stake after the entry of the investor. As on December 31, 2014, the promoter and promoter group held 62 per cent stake in ABG Shipyard.

DRIFTING AWAY

• ABG Shipyard is in the midst of a corporate debt restructuring exercise
• Under this, a 22-lender group led by ICICI Bank agreed last March to recast Rs 11,000 crore loans
• The group offered the shipbuilder a two-year breather on the payment of interest, a reduced borrowing cost, and an extension of the repayment period

The flagship company of the ABG Group is in the midst of a corporate debt restructuring (CDR), under which a 22-lender consortium, led by ICICI Bank, agreed last March to recast Rs 11,000 crore loans, offering the shipbuilder a two-year breather on the payment of interest, a reduced borrowing cost and an extension of the repayment period.

"This space in the shipbuilding sector is becoming exciting and in six months, we are going to see a sea change," said the official, without revealing the names of the firms the company is in talks with. "At this juncture, I cannot even reveal the investment the new investor is going to bring," he added.

The shipbuilding facilities of the company are located at Surat and Dahej in Gujarat.

ABG Shipyard has been witnessing a drying revenue stream in the past few quarters. In the quarter ended December 2014, it reported single-digit revenues on a stand-alone basis. The company's bottom line has also moved into losses, which have only widened in the past four quarters. "The focus is going to be mainly on defence and navy orders. To that extent, we are upbeat and are in dialogue with the government as well," said the official. "We are no more interested in the commercial delivery of ships," he added.

Currently, the company's total order book stands at Rs 12,000 crore, of which defence orders are worth only Rs 1,500 crore, the rest being commercial.

On a likely management reshuffle at ABG Shipyard on the lenders' demand, the company official said: "There has been no talk of this kind with any of the banks of the group. It is not so easy to change the management in this sector. No banker will demand such a change."

ABG Shipyard plans to sell some of its non-core assets to raise Rs 400-500 crore. The company plans to infuse this into the working capital, said a banking source close to the development.

"Working capital is much needed for this company and so these funds will be utilised for the same," said the source.

Alongside, ABG Cement, the group's cement business, is awaiting fresh investment from Dubai's SIMAC as the latter will be picking up a 51 per cent stake in the company. "Once the investment comes in, we will launch the cement product by June-July, which is the best time as there will be no delivery pressure due to lean construction season," said the company official. The firm plans to close the deal by the end of April, said the banking source.

"Our focus is to better the group's cash flow. So, most of the proceeds of about Rs 550 crore will be utilised towards reducing the Rs 2,000 crore debt on ABG Cement," said the ABG Shipyard official.

ABG Group's cement business housed under ABG Cement comprises a 5.8-million-tonne grinding unit at Surat and a 3.3-million-tonne clinker unit at Kutch near limestone reserves.

"Once the ABG's cement product goes on the shelf and once its shipbuilding business finds a strategic investor, we lenders will be relieved as these two are big concerns for us as of now," said the banking source cited above.