Mazagon Dock, Goa Shipyard likely to merge

Govt could decide ahead of former's public listing

The central government is considering mergers of similarly placed state-owned companies in the defence sector. The first among these could be of Mazagon Dock Shipbuilders (MDS) and the smaller Goa Shipyard Ltd (GSL), this newspaper has learnt.

The idea, say senior government sources, is to ensure more attractive valuation for investors as the Centre prepares for public listing of MDS in the stock exchanges. The Centre owns 100% stake in both companies.

“They have a similar profile and their facilities are relatively close to each other in geographical terms. A merger is being considered and might happen before the MDS listing,” said an official.

MDS, with revenue of Rs 4,900 crore for 2015-16, builds various classes of  destroyers, frigates, corvettes, submarines and coast guard vessels. GSL, with revenue of Rs 786 crore for 2015-16, makes offshore patrol vessels, minehunters and landing ships.

The finance ministry’s department of investment and public asset management has issued a  formal Request for Proposal for legal advisors and lead managers for public listing of a number of public sector undertakings (PSUs) under the defence ministry. These include Bharat Dynamics, Garden Reach Shipbuilders, MDS and Mishra Dhatu Nigam.

Our only manufacturer of military aircraft, Hindustan Aeronautics, is also expected to make a market debut this year. So will Cochin Shipyard, which is under the shipping ministry but also makes warships.

The government has planned a number of mergers and acquisitions (M&A) in the PSU space. In his 2017-18 Union Budget speech, Finance Minister Arun Jaitley said they saw “opportunities to strengthen” PSUs through consolidation or M&A. He gave the example of the oil and gas sector. “We propose to create an integrated public sector oil major, which will be able to match the performance of international and domestic private sector oil and gas companies.”

State-owned and listed construction company NBCC bought Hindustan Steelworks Construction as a subsidiary earlier this month. There are also plans to merge smaller PSUs in the construction space, such as Hindustan Prefab, Engineering Projects India, NPCC and HSCC, into the larger NBCC.

Such mergers and takeovers will help the Centre meet its divestment targets as larger PSUs buy out stake in smaller ones from the government. The total disinvestment budgeted estimate for 2017-18 is Rs 72,500 crore. Of this Rs 46,500 crore is to come in from minority stake sales, buybacks, mergers, public listings and through the CPSE exchange-traded fund route.

Another Rs 15,000 crore is budgeted to come in from strategic sale in PSUs and in non-government companies in which the Centre has a stake, like Axis Bank, ITC, and L&T. The remaining Rs 11,000 crore is expected from the earlier-announced plan to list five state-owned general insurance companies.