India’s largest private ship building company, ABG Shipyard, finds itself in rough seas again. CNBC-TV18 has learnt from sources that the cash-strapped shipbuilder may be taken over by its lenders if it fails to bring in a strategic investor soon. ABG Shipyard’s Rs 7,200 crore debt was restructured under corporate debt restructuring (CDR) in March 2014, but the debt has since ballooned to over Rs. 11,000 crore. The 22-member consortium that has an exposure to ABG Shipyard is headed by ICICI Bank. Its exposure to ABG Shipyard stands at Rs 2,600 crore, followed by State Bank of India at Rs 1,600 crore, IDBI at Rs 1,400 crore, Punjab National Bank at Rs 700 crore and Exim Bank at Rs 700 crore. Sources to CNBC-TV18 also say banks have even facing issues in trying to get ABG Shipyard promoters to comply with some of the norms in the CDR package. The account has already turned into a non-performing asset (NPA) for banks like ICICI Bank, DCB and Bank of Baroda. It remains a stressed account in the special mention account category for others like State Bank of India and IDBI. As a result, banks have been pressurizing the company to bring in a strategic investor soon. As per the notice sent to exchanges, Germany-based Privinvest Holdings has submitted an expression of interest to ABG Shipyard for a strategic stake buy, but the deal is yet to be closed.Sources say the lenders are fast losing patience and mulling taking over the company under strategic debt restructuring (SDR) if the deal with Privinvest Holdings does not go through. Under SDR, banks can convert their debt partially or completely into equity and acquire majority stake in a company. Promoters Rishi Agarwal and Kamlesh Agarwal and ABG International together hold about 56 percent stake in the company, according to information provided to the exchanges. In a response to the query by CNBC-TV18, ABG Shipyard said that the account had turned into an NPA or bad loan for a few banks due to technical reasons, not related to non-payment of dues. It further clarified that no talks had been held with the lenders with regards to SDR. It also said talks with Privinvest Holdings are still ongoing. Consortium lead ICICI Bank did not offer any comment on client specific issues, as per its policy. The stock rose as much as 9 percent in trade after CNBC-TV18 broke the news, and closed the day higher by 7.8 percent.On next page: Exclusive interview with ABG Shipyard CFO D Datar._PAGEBREAK_
Below is the transcript of D Datar's interview with Reema Tendulkar and Ritu Singh on CNBC-TV18.
Reema: Could you give us an update on where your deal with Privinvest stands because we understand that the lenders might invoke the strategic debt restructuring (SDR) if your deal with Privinvest fails?
A: I don’t think anything like this can happen in our case because we are in advanced talks with Privinvest. We believe that they are very serious strategic investors with ABG Shipyard and the whole idea is to strengthen our base for ship building for defence. I don’t think Punjab National Bank (PNB) is NPA, PNB account is standard with us and whatever other banks have become NPA like ICICI Bank or Bank of Baroda (BoB), they are on some technical issue. It is not a payment issue at all.
We are working very well with our lenders, we are building ships, we are delivering it to navy. We have delivered two ships till last month and one more ship is going to cost guard in October. So, we are working hard to see that if shipbuilding for defence can pickup and that is where the future lies. So, I don't think there is any real stress to say that if this does not happen, banks will do this, do that; I think this is too premature. If that is the eventuality then there could be some other bias also. It is not only that there is one company in India, there is one company who wants to come to India; there could be several others.
Reema: You said that your deal with Privinvest is in advanced stages of negotiation. When are you likely to conclude this deal? Could you give us a rough estimate or timeline?
A: If you understand the defence space, it is very critical for every company and the country therefore any defence player who enters a country, he has to do all this due diligence well not only on the company but the sector, the government, the approvals. So, these things take time and bankers understand this very well.
Reema: You are saying that it is difficult that it will be concluded in FY16 because of the quantum of due diligence that is required?
A: Yes, it is not my due diligence, it is the sector due diligence which they need to do. Therefore, these usually take time. In any M&A deal the timelines are sometime something between five to six months. Have you seen any M&A deal happening one or two months?
Reema: Likely in FY16 or no?
A: Yes likely in FY16.
Reema: Any word on the valuations of your deal with Privinvest because your debt is very high?
A: No, because we are working on a very different ideology with them and purely focusing on defence. So, valuations don’t play a very big role in this case.
Ritu: If I may seek a clarification with respect to a Corporate Debt Restructuring (CDR) package, we do understand you were given a two year monetarium. There was an ease of interest rate payment as well. Despite that you yourself said the account for some technical reasons has become a non-performing asset (NPA) for some banks. May I understand what those reasons are if it is not because of non-payment of dues?
A: That is something which only banks can explain you because technical reasons are between Reserve Bank of India (RBI) and banks. We cannot go and ask them what has happened because those reasons were far beyond CDR period; they were something of 2012, 2013 where we were not even in CDR.
Ritu: Has there been any working capital help from the banks so far?
A: As a CDR package banks have sanctioned additional working capital and partly since the ship building program under CDR is very specific to ships, so, between us and banks we have worked out that we should just focus on defence ships. They are releasing the working capital which is required to build the defence ships. So, in that sense we are working well with it.
Ritu: If I may ask what are the other investors, have you already held talks with them aside of Privinvest?
A: There is something which we can’t discuss at this point of time.
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