Bharati Shipyard will face working capital constraints for six months to a year, say analysts, as the competitive open offer bids made by the company and its rival for control of Great Offshore are getting over on Tuesday. A six-month battle, which saw Bharati gradually increasing the open offer price to Rs 590 a share from the initial offer of Rs 344 a share made in June, has increased the acquisition cost burden for the 20 per cent stake by an additional Rs 200 crore.
ABG Shipyard, Bharati’s rival, sold its existing 8.2 per cent stake a day after Bharati increased its open offer price to Rs 590 this month. With that, it exited the race, although its open offer, at Rs 520 a share for a 33.8 per cent stake, would technically continue till Tuesday. Bharati, which has already acquired 22.4 per cent in Great Offshore, is funding the acquisition of the additional 20 per cent stake from internal accrual and debt.
“Bharati’s debt would become twice the equity post the open offer,” said Param Desai, an analyst with Angel Broking, a Mumbai-based brokerage. According to the balance sheet at the end of the last financial year, the company had debt of Rs 1,003.4 crore against equity of Rs 702.6 crore. The company would require about
Rs 440 crore for the additional 20 per cent stake. Once debt is double the equity, it would put constraints on additional debt raising capacity.
“The interest costs would certainly increase, putting more pressure on the working capital needs,” said Jehangir Adi Master, an analyst with ICICI Securities, the brokerage arm of ICICI Bank.
On Friday, Bharati Shipyard’s market capitalisation was Rs 599 crore, against Great Offshore’s valuation of Rs 1,891crore. Bharati Shipyard acquired 14.89 per cent in Great Offshore in May at Rs 315 per share from the latter’s then vice-chairman and managing director, Vijay Sheth, following an invocation of shares that he had pledged. This left Sheth with less than 1 per cent in the company and he lost control.
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Following this, on June 4, Bharati made an open offer to acquire an additional 20 per cent stake in the company at Rs 344 a share. On June 23, ABG Shipyard made a counter-offer to acquire 33.8 per cent in Great Offshore at Rs 375 a share. On the same day, Bharati acquired an additional 14.5 per cent in a bulk deal at Rs 403 a share and later increased its open offer price to Rs 405 a share.
ABG Shipyard then bought an additional 6 per cent in three tranches from the open market and increased its open offer price to Rs 450 a share and finally to Rs 520 a share. This made Bharati increase its open offer price to Rs 560 a share after increasing its stake to 22.8 per cent from open market transactions. This month, before the open offer started, Bharati once again revised its open offer price to Rs 590 a share. The following day, ABG sold its shares and effectively exited the race.
Bharati has got over 1.6 million shares in the open offer for the extra 20 per cent stake (over 7.4 million shares). “We don’t see any more hitch coming in our way,” said P C Kapoor, managing director. “We expect over 20 per cent shares to be tendered, most of which will come in the last two days.”