The Hindu Business Line : What next for GE Shipping?

Restructuring options
Company can seek more time from the Bombay High Court to complete scheme of arrangement
Another option will be setting up a subsidiary to handle its entire offshore business

Mumbai , Aug. 7

Now that Great Eastern Shipping has decided to jettison its proposal to de-merge its offshore business into a separate entity, the question being asked in shipping circles is what is in store for India's biggest private sector shipping company.

The company's board is meeting again on August 9 to consider the various restructuring options after the August 2 meeting, which decided to call off the proposal. The company, in its notice to the BSE, informed that the options included seeking approval from the Bombay High Court an extension of the time limit to complete the scheme of arrangement.

Another option

Sources also said another option the company could consider was setting up a subsidiary that would handle the entire offshore business of the company.

The issue that will be the fulcrum of the debate at its forthcoming board meeting is whether the company's two businesses — shipping and offshore — should be run under one entity, especially now that the offshore market has significantly opened up in the last few months.

In fact, the very reason for the company to come out with the de-merger proposal about a year ago was to unlock the value of its offshore business by hiving it off into a separate company. The idea was that the offshore division, which contributed to less than 20 per cent of the company's business, could cash in on the enormous market growth by functioning independently.

Greater need

Thus, going by the same logic, it would seem that the need for the de-merger is perhaps even more now in the light of the increasing pace of drilling and offshore exploration activities round the world, fuelled by spiralling oil prices, analysts say.

Indeed, latest numbers flowing from various parts of the world on oil demand point towards Asia Pacific as the most import oil consumption region, which has resulted in increased oil exploration and production activities in this area. According to a forecast by Mackay Consultants of Scotland, Asia Pacific region's oil production is expected to increase to 6.7 million barrels per day in 2009, a jump of 92 per cent since 2003. This region is expected to account for about 35 per cent of global offshore drilling in 2009, up from 30 per cent in 2003.

Indian exploration

The major E&P operators together have invested around $2 billion in the Indian exploration and production activity and each of the major operators have a committed capital expenditure programme of over $300 million annually. This clearly indicates the growing significance of E&P operations in India. In fact, of late, various global players have shown serious interest in the Indian markets, which may further improve the prospects.

GE Shipping, which has proposed to purchase six offshore vessels at a cost of $86 million this fiscal, had stated that other plans for its offshore business, including fresh capital expenditure, would be decided only after the de-merger.

Now that this proposal has been called off, it remains to be seen how the company develops its offshore division in the existing set up.

Whichever course the company decides to take in the months to come, its failure to wrap up the de-merger proposal may dampen the growth prospects of its offshore business vis-à-vis the potential in the short to medium term.