The Great Eastern Shipping Board is meeting on Thursday to finalise the valuation of the business and approve a detailed proposal for the demerger.
The company's offshore business includes drilling services, marine logistics, marine construction and port and terminal services.
According to industry sources, following the unbundling of shares, an existing shareholder of Great Eastern Shipping is likely to get between 20 and 35 shares of Great Offshore for every 100 shares held.
This essentially means that a person who holds 100 shares of Great Eastern Shipping will continue to hold between 65 and 80 shares of Great Eastern Shipping and between 20 and 35 shares of the new entity taking the total to 100 shares. The demerger will be effective from April 1.
"Under Section 2 (19AA) of the Income Tax Act, in a demerger the shareholders should get shares of two demerged entities.
One way of doing this is to offer bonus shares but by doing so the capital base of the entities will go up. The other way is to unbundle the shares without increasing the number of shares. Great Eastern Shipping will follow the second option," said a source.
According to sources, the valuations of GE Shipping is likely to increase substantially after the demerger. Globally most offshore companies are now trading at PE multiples ranging from 22 to 35.
GE Shipping is traded at a PE Multiple of less than 4. The profitability of the company's offshore unit is amongst the highest in the industry.
"Considering the large offshore fleet and business potential, the stand alone profits of the proposed offshore division of GE Shipping, which is the largest private shipping company in India, is expected to be double the size of the entire industry, excluding ONGC," said an equity analyst.
There are six listed companies in the offshore segment. They are Aban Loyd Chiles, Hindustan Oil Exploration Company, Shiv-Vani Oil & Gas Exploration Services, Jindal Drilling & Industries, Dolphin Offshore Enterprises (India) and Asian Oilfield Services.
"Drilling major Aban Lyod is only into rig business while the offshore division of GE Shipping is into drilling, offshore supply vessels and harbour tug services," sources said.
The demerger, which would be in compliance with the provisions of Section 2 19AA) of the Income Tax Act, is viewed as an efficient tax neutral and shareholder-friendly mechanism to restructure businesses, sources said.
The stock was trading at Rs 169 on August 26 before the demerger announcement was made. On Tuesday, it hit its lifetime high of Rs 220 before closing at Rs 216.90. The Great Eastern scrip was marginally down to Rs 214.10 on Wednesday.