The Hindu Business Line : GE Shipping split: No large cash transactions likely

ALTHOUGH on a much lower scale and involving much lower media attention compared to the recent split of the Reliance behemoth, the splitting of the country's largest private shipping company, Great Eastern Shipping Co, which will be formally announced on August 31, is being keenly watched by the investment community.

One thing that has emerged in the final run-up to the split is that it will not involve any complicated equity swapping and elaborate corporate restructuring, as was seen in the division of the Reliance empire. Analysts say the split may not see big sums of money changing hands among the members of the Sheth family, regarded as one of the oldest business families in Mumbai, which controls the company.

The reason is the company's business interest almost entirely lies in the domain of shipping. It has two divisions — the shipping division, which is being managed by Mr Bharat Sheth, son of the chairman, Mr K.M. Sheth, and the offshore supply division, managed by Mr Vijay Sheth, who is Mr Bharat Sheth's cousin. Although the two divisions were under the flagship company, GE Shipping, these were functioning independently and as separate profit centres.

Analysts say it is precisely for this reason that the splitting of the two divisions into two different entities may not involve large cash transactions.

Although the details of the impending split in the company are not known, what is clear is that the shipping division, which accounts for over 80 per cent of the company's revenue, will go to Mr Bharat Sheth. The offshore division, which has the remaining share of 20 per cent, will go to Mr Vijay Sheth.

Normally, in a de-merger process, the assets and liabilities attached to the divisions are allotted to the respective new entities. In the existing structure of the company, the shipping division accounts for 61 per cent of the company's total capital employed of Rs 4,269 crore, while the offshore division accounts for 15 per cent and the rest is in the form of cash equivalents of Rs 1,000 crore and miscellaneous assets not attached to any particular division.

According to analysts, the cash balance will hence be allocated to each of the divisions on the basis of the operational income earned during the period, while the balance unallocated portion, comprising debt raised for expansion, will be adjusted as per the orders placed for the capital expenditure programme of the two divisions.

While the shipping division is to buy five ships, the offshore division plans to procure six offshore vessels using these loans.

What is unclear however is the way the company will go for stock split. The Sheth family holds about 25 per cent equity in the company. Sources say, following the impending split, the chances are that there will be a mirror image as far as shareholding in both the entities is concerned.

Another significant factor that will play a role is the recent rise in institutional holding in the company. As on August 19, the FII holding was around 14 per cent and mutual fund holding was 7 per cent. "The scheme will surely factor the interest of all the investors, as the rationale of the de-merger would be on the grounds of unlocking shareholder value," an analyst said.

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