Another demerger for GE Shipping?

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Another demerger for GE Shipping?

One week the GE Shipping demerger was off, the next week it was on again. And even as the company was working to demerge it offshore business, it was busy creating another one, reports CNBC-TV18.

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One week the GE Shipping demerger was off, the next week it was on again. And even as the company was working to demerge its offshore business, it was busy creating another one, reports CNBC-TV18.

GE Shipping floated the demerger idea for two reasons, one was to provide both businesses greater managerial focus. But the more important one was to unlock value.But curiously even as the demerger processes were on, GE Shipping was creating another subsidiary focussed on the offshore business.

Greatship (India), a 100% subsidiary of GE Shipping has in the past six months ordered two platform supply vessels, contracted to buy another two and ordered a jack up rig. All this with a view to "be in the offshore support & logistic services business."

When asked why the company was on one hand demerging the existing offshore business and on the other creating a new one, the management said, "GE Shipping is a cash rich company, which had Rs 1,400 crore of cash as of March 3, 2006. There were no opportunities available in the shipping space, especially when asset prices continued to remain firm for a long time and freight rates were on a downturn. It was on a risk return basis, in order to be fair to our shareholders, that we decided to make investments in businesses, which would enable us to maintain profitability in the middle of the cycle," said management.

But what happened to the one year Non-Compete Agreement between Bharat Sheth's GE Shipping and Vijay Sheth's great offshore. The company denies there was any Non-Compete, even though there has been previous mention of it in media reports and by the Sheth brothers. For instance, in September last year Vijay Sheth did not deny the existence of a one year Non-Compete Agreement.

"The intention is not to enter into other business after one year but to grow each business," said Vijay Sheth, MD at GE Shipping.

When Bharat Sheth was asked about the Non Compete Agreement he said, "These are details, which still have to be worked out. The whole purpose of demerging the oil field services business is really to create two very focused entities. So, it is not our current intention to plan the rebuilding of that."

But in six months, GE Shipping was already rebuilding a seperate offshore subsidiary. The company now explains that no Non-Compete was violated as Vijay Sheth was part of the decision on Greatship's entry into offshore.

"This subsidiary also, at the right time when it reaches critical mass in terms of asset depth, turnover and profitability could be demerged for extracting value," said Rajat Dutta, GM at GE Shipping.

It's an intriguing situation, why would GE Shipping demerge it's offshore business only to create another one. Another one that maybe demerged again.