Rishi Agarwal, the former promoter of fallen shipbuilder ABG Shipyard Ltd, in the eye of what is dubbed as India’s biggest bank loan scam, is not flashy or flamboyant like Vijay Mallya.
Yet, beneath the quiet and unassuming demeanour lurks an aggressive and ambitious businessman, who was once a rising star in the Indian shipbuilding industry.
Rishi is a nephew of the Ruia Brothers of Essar Group (Rishi’s mother is one of the six sisters of the Ruia Brothers).
Making the most of subsidy scheme
During the previous boom for global shipping in 2006-07, ABG Shipyard won many orders, riding on a subsidy scheme extended by the government to local yards. Indian yards tapped global fleet owners, who were looking to place orders at newer destinations as yards in South Korea, China and Japan could not take more contracts in the face of an ordering glut.
In fact, days before the subsidy scheme ended on August 14, 2007, after a five-year run, ABG booked many orders worth millions to take advantage of the scheme.
Some of these shipbuilding contracts were described by industry executives as “speculative orders” booked by friendly fleet owners, related parties or group companies in India and overseas. Many of these ships were never built as the collapse of Lehman Brothers in the US in 2008 crippled the global economy and cut demand for transporting commodities.
Some of the “genuine orders” given by global fleet owners were cancelled as the global economy went into a tailspin.
While some of the ships under construction were palmed off to three newly formed special purpose companies in Singapore and one in Norway, Rishi ventured into ship ownership to save the shipbuilding contracts, receive the government subsidy and prop up his yard.
Some orders such as that for two jack-up oil drilling rigs placed by Essar Shipping Ports and Logistics Ltd in 2008 for $440 million, were not delivered.
The shipbuilding subsidy scheme offered shipbuilders, both state-owned and private, 30 per cent extra on building ocean-going merchant vessels that were more than 80m in length, if they were manufactured for the domestic market.
For export orders, however, ships of all types and capacities were eligible for the subsidy.
This government subsidy was given to public sector yards in instalments, while private companies got it after the ship was built and delivered to the buyer.
“Rishi has the gift of the gab,” said a former director at state-run Shipping Corporation of India Ltd (SCI), who knew him well. “With tall talk, he convinced people to order ships at his yard,” he said, adding that ABG Shipyard “never fulfilled contracts for constructing a few offshore vessels ordered by SCI”.
In 2007, ABG Shipyard bought the ailing ship and rig repairer Western India Shipyard Ltd, from a group of financial institutions led by ICICI Bank Ltd. This was followed by setting up a new yard at Dahej to add to the first facility at Magdalla in Surat, both in Gujarat.
Somewhere around this time, ABG also secured a permit from the government to build war ships for the Indian Navy.
Takeover battle with Bharati Shipyard
In 2009, Rishi was involved in a takeover battle with his then nearest rival Bharati Shipyard Ltd for offshore services firm Great Offshore Ltd. After jacking up his offer price multiple times to buy stake from public shareholders of Great Offshore, Rishi eventually withdrew from the race in the final lap, making the deal costlier for the promoters of Bharati Shipyard.
The intent behind a potential take-over of Great Offshore, again, was the possibility of securing shipbuilding contracts from an established company.
To be sure, both Bharati Shipyard and Great Offshore Ltd (later renamed as GOL Offshore Ltd) went down a few years later due to unpaid dues to lenders.
The SCI director mentioned earlier said that ABG Shipyard allegedly “misused” the government subsidy scheme by resorting to “unethical practices”.
“The government gave incentives to propel shipyards such as ABG, but were taken for a ride,” he added.
Indian yards, particularly those constructing cargo ships, never recovered from the fall-out of the collapse of Lehman Bros.