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Hostile takeover of Great Offshore possible: Analysts

June 02, 2009 10:47 IST

Analysts, as well as a couple of competitors, see scope for a hostile takeover bid for Great Offshore as the company is asset-rich and the offshore segment is doing quite well now.

India's second-largest private ship builder, Bharati Shipyard, which already holds 14.9 per cent stake in the company, had on Sunday said it will make an open offer to buy an additional 20 per cent in the company.

While P C Kapoor, managing director of Bharati Shipyard, ruled out any possibility of a hostile takeover bid for Great Offshore on Monday, he had earlier told Business Standard that competitors such as Punj Lloyd and ABG Shipyard had shown an interest in buying Great Offshore shares from the open market. Institutions and the public hold around 84 per cent stake in the company.

Soon after acquiring the 14.9 per cent stake in Great Offshore, Kapoor had also categorically ruled out going in for an open offer, as he saw no reasons for it.

When asked today what prompted him to change his mind so soon, Kapoor said, "The outlook for offshore services has changed with crude prices gaining, and that prompted us to change our view on Great Offshore."

The price of Brent benchmark crude has gained 15.5 per cent to $66.7 per barrel since May 8.

"We were sure of the prospects for offshore services, but it took time for us to make up our mind," he said.

According to the company's share holding till March 31, 2009, out of the 84 per cent public share holding, about 25.9 per cent is held by 259 institutions, while 13.78 per cent is owned by close to 2,000 corporate bodies. The balance 41.48 per cent is owned by more than 100,000 individuals.

"There is a fair chance of a hostile takeover," said a competitor of Bharati Shipyard, who did not wish to be named.

"The large public shareholding and competitors' clear interest in the company has put the possibility of a hostile bid on the higher side," said an analyst at a foreign brokerage tracking the company.

Punj Lloyd, which has a stake in Pipavav Shipyard, did not respond to queries. ABG Shipyard, the largest shipbuilder in the country, did not wish to comment on the issue.

Great Offshore has placed an order of about Rs 1,200 crore (Rs 12 billion) with Bharati Shipyard, including that for an offshore jack-up rig. The synergy between building ships and running the offshore business is something that had made the company attractive for shipbuilders.

The stock of the company is currently trading at a discount of about 50 per cent to its one-year high of Rs 742 on the Bombay Stock Exchange. The Great Offshore shares gained 2.68 per cent at Rs 373.70 a share on the BSE on Monday against the benchmark Sensex's gain of 1.47 per cent.

The Bharti Shipyard stock increased 9.97 per cent to Rs 167.10. The company plans to announce the open offer price for the stock on Tuesday.

Analysts said the Bharati Shipyard move for an open offer will heavily add to its debt. For example, outstanding foreign currency convertible bonds worth Rs 2,400 crore (Rs 24 billion), which are due for redemption in December 2010, are a major concern.

In June 2007, Great Offshore promoter Vijay Sheth had pledged his entire 15.5 per cent stake with IL&FS and Motilal Oswal, who started to seek margin money following a plunge in the value of shares pledged by Sheth.

He borrowed the money from Bharati, with whom Great Offshore had placed orders for some vessels. However, last month, Bharati acquired the pledged shares for Rs 315 each, calling it a 'strategic investment.'

Vijay Sheth, whose stake currently is below 1 per cent, stepped down as vice-chairman and managing director of Great Offshore on Saturday, clearing uncertainties about the firm's management control.

Abhineet Kumar in Mumbai