The Hindu Business Line : Revised de-merger may help GE Shipping get ONGC nod

New proposal
The promoters, who hold 26 per cent stake at present in GE Shipping, will also hold similar stake in the new entity — Great Offshore Ltd.
Mr Bharat Sheth, who will be heading the shipping business, will continue to have a stake in the offshore business.
His cousin, Mr Vijay Sheth, will have his stake in the parent company.

Mumbai , Aug. 12

The revised de-merger scheme of Great Eastern Shipping Company, which envisages identical promoters' holding in the parent company as well as the new entity, is expected to clear the hurdles for the company in getting ONGC's approval that was holding up the de-merger process.

ONGC, which employs the services of Great Eastern Shipping's offshore division, was refusing to give its approval to the de-merger, as it was not too warm to the idea of the new entity giving bank guarantees for its existing and future contracts.

Apparently, the oil exploration company was uncertain of the kind of promoters' backing that the de-merged entity would have, sources said.

Reshaped proposal

In order to satisfy ONGC's concerns, GE Shipping re-shaped its de-merger proposal to give the new entity identical promoters' backing.

At its August 9th meeting, the company's board decided to revise the proposal so that Mr K.M. Sheth would head both the companies as chairman after the de-merger and that these would have identical promoters' holding.

In other words, the promoters who hold 26 per cent stake at present in the company, will also hold similar stake in the new entity — Great Offshore Ltd. This also means that Mr Bharat Sheth, who will be heading the shipping business, will continue to have a stake in the offshore business and his cousin, Mr Vijay Sheth, will have his stake in the parent company.

When the scheme was first mooted, it was proposed that Mr Bharat Sheth, would sell his stake in the offshore business to Mr Vijay Sheth and vice-versa. In fact, one of the reasons for the de-merger was in view of the simmering differences between the two cousins. "In the revised proposal, ONGC should not have any concerns while dealing with the new entity, because of its identical promoters' holding," an analyst said.

Shipping circles' view

Shipping circles feel that as a business decision, the move to go ahead with the de-merger would augur well for the company. For, they point out, both the company's businesses — shipping and offshore service — would grow faster stand-alone than on a consolidated basis. Also, there would be greater managerial focus and specialisation in each of the two businesses.

Further, the offshore entity will get better opportunities at leveraging. "Traditionally, shipping companies globally have leveraged up to one time their net worth. But offshore companies can go for more aggressive leverage, because of longer-term duration of the contract. There are companies that have leveraged up to two or three times.

Further, the total resources of the company was governed by its shipping business, but stand-alone the two businesses can determine more aggressive leverage approach," an analyst pointed out.

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