The race for acquiring a stake in offshore oilfield service provider Great Offshore Ltd (GOL) gained pace with ABG Shipyard making a counter offer early on Tuesday, and Bharati Shipyard announcing its intention of revising its original offer price later that evening.
The management of Bharati is terming their motivation to buy GOL as strategic investment, while ABG is calling it a forward integration move.
The bidding war is likely to drain the internal accruals of at least one of the shipbuilders. These funds could have been better utilised to repay debts of these highly geared companies.
Bharati has stated that it may revise its offer price to at least Rs 403 a share, going by the price it paid for buying 4.58 per cent shares of GOL through block deals on Tuesday. The revised offer is yet to be made to stakeholders.
ABG’s offer at Rs 375 a share is 9 per cent higher than the Rs 344 a share originally offered by Bharati Shipyard.
As the bidding war intensifies, both the shipbuilders appear to have different motives behind their moves.
For Bharati, GOL accounts for about 30 per cent of its order book; with offshore vessels accounting for almost two-thirds of Bharati’s revenue, the stake could mean securing captive demand for such vessels, while warding off hostile bids. It could also mean acquiring interest in offshore services, thus reducing reliance on the yet-to-revive shipbuilding industry.
Note that rig order cancellations have also been a risk in recent times for offshore companies.
While Bharati has stated that it will fund the offer through accruals, the company’s net debt of Rs 700 crore, including FCCBs to be retired by December 2010, remain a burden.
For ABG Shipyard, the move appears to be an inorganic route to achieve its earlier objective of building rigs for charter to oil exploration companies. The company had planned to fund the rig-building business through debt.
While the company hopes to utilise internal accruals for the GOL bid, its debt-equity ratio at about 1.8 may require immediate attention. The current counter-bid would require about Rs 470 crore.
Rig order cancellations in recent times, and no clear signs of revival in ship orders, however, suggest that the stake in GOL may not yield any near-term benefits for either of the shipbuilders
Source: The Hindu Businessline