 "ABG Shipyard stake sale talks with Privinvest fail")
Debt-laden ABG Shipyard is back to square one as its talks with Germany-based Privinvest Holding for financial collaboration have failed leaving the domestic shipbuilder with no option but to scout for another investor, banking sources with direct knowledge said. The company is currently in talks with four other companies for the strategic stake pick, they said.
"ABG Shipyard is talking to some other investors now since the talks of financial collaboration with Privinvest Holding is not coming through," a banking source close to the development told Business Standard today.
ABG Shipyard, the country's largest private sector shipbuilding firm, has been in talks with the German company since June. Lowering its debt and exiting the ongoing corporate debt restructuring (CDR) package was one of the main reasons the domestic shipbuilder has been scouting for a strategic investor. As on March 31, 2015, ABG Shipyard's consolidated net debt stands at Rs 6,953 crore.
"At the joint meeting held 10 days back, ABG informed bankers that it is in talks with four investors for the stake sale but there is no major development as of now on that front," another banking source said.
ABG Shipyard is the flagship company of ABG Group with two shipbuilding facilities in Gujarat, one at Dahej and other in Surat.
A balance sheet much bigger than the size of the facility of ABG Shipyard was perhaps the reason for Privinvest Holding to walk out of the deal, said sources close to the development.
"If ABG is not not able to find an investor soon, we will take the SDR (Strategic Debt Restructuring) route," said the first banking source.
ABG Shipyard has approved the CDR package in March 2014. In order to exit this CDR, the company has been in talks with Privinvest last few months.
A 22-member consortium has an exposure to ABG Shipyard headed by ICICI Bank. The latter's exposure to ABG Shipyard is the highest followed by State Bank of India and IDBI. Punjab National Bank and Exim Bank also have almost equal exposure to ABG's loan.
Meanwhile, even as the financial deal with Privinvest has fallen through, ABG has entered into a technical tie-up with the company to strengthen its business.
"An Memorandum of Understanding (MoU) has been signed with Privinvest Holding mid-November and we have also informed all lenders regarding the development," a company source with direct knowledge said. "As per the MoU terms, a separate joint venture (JV) company only focusing on the defence and navy segment will be formed where ABG will hold 51 percent stake (in the JV) and balance will be with Privinvest," the source added.
ABG is largely into commercial shipbuilding, and this tie-up should help it foray into lucrative areas.
"The MoU has been signed with Privinvest for it to impart some technical assistance to ABG Shipyard. The MoU has nothing to do with financials of ABG," said the first banking source.
However, not all lenders, were aware of the MoU signing with Privinvest.
"We are not aware of any MoU signing with Privinvest. ABG has not informed anything when we met recently," said the second banking source.
The resolution to ABG's problems, however, is not easy unless it is able to quickly get in a financial investor even as this new tie-up will help take forward its business.
"There is going to be no quick fix for the ABG Shipyard's debt issue. It will remain on the company's books. Once the JV starts generating profits, ABG will be able to repay its lenders from its share (of profits)," said the source. "As per the MoU, Privinvest will be taking care of everything right from lending technology to providing working capital and also training of manpower if the need be," informed the company source.
ABG currently has an order book size worth $2 billion which comprises entirely of commercial vessels. The cash-strapped company plans to take advance from the buyer and then complete its orders.
Like other shipbuilding companies across globe, ABG Shipyard too has been battling hostile business climate for quite some time now. The company's FY15 debt-equity ratio was the highest at 5.63 since the last five years. In the year gone by, the company reported a loss at the operating level itself as the topline contracted miserably to Rs 450 crore from Rs 1,662 crore in the preceding year and Rs 2,524 crore in FY12- the highest revenue level in last five years.
"ABG is aiming to halve the debt on its books in a span of three years, once the JV starts yielding profits," said the company source.
