Mahindra eyes stake in ABG Shipyard

[Editor: ABG Shipyard Ltd holds 53.14% shares of Western India Shipyard Ltd (WISL, CMP: Rs.2.99); which means any increase in the share price of the former could have a direct bearing on the WISL. The text says: "Billionaire Anand Mahindra-led group has also been in discussions to acquire Pipavav Defence & Offshore Engineering, where he is pitched against the Munjals of Hero MotoCorp"]

MUMBAI, Feb 25, 2015: India's debt-laden, privately run shipbuilders are becoming M&A targets as big corporate houses seek to expand into red hot defence sector, where the government will spend $250 billion in the next decade to modernize the military.

The $17-billion Mahindra Group, which is eyeing acquisitions in the sector, is said to have initiated talks with ABG Shipyard to acquire a large strategic stake in the maker of naval ships and vessels. Billionaire Anand Mahindra-led group has also been in discussions to acquire Pipavav Defence & Offshore Engineering, where he is pitched against the Munjals of Hero MotoCorp.

Rishi Agarwal-promoted ABG, the country's largest ship builder with facilities in Gujarat and Goa, has a beaten down share price and is in the midst of a Rs.11,000-crore debt restructuring plan. Pune-based Bharat Forge is said to be another contender though its executive director Amit Kalyani denied on phone the reports about company's interest in ABG.

Spokespersons of Bharat Forge and Mahindra said the groups would not comment on market speculation.

An ABG official said the company was in discussions with investment bankers to raise equity and was looking at several options. Its chief financial officer Dhananjay Datar said the company cannot comment on rumours and will "come out with official conformation if any definite transaction takes place".

Agarwal, a member of the Ruia family, hit headlines for attempting to acquire Great Offshore a few years ago. 

He could explore private equity, QIP or follow-on offers among the options to bring fresh equity into the company. But it is unclear how a company with Rs 1,057-crore market capitalization and a huge debt would pull off fund raising on the bourses.

For the successful acquirer, a deal in ABG will boost defence play as the Mumbai-based company has a naval warship building licence. The company is said to be sitting on orders worth Rs 9,000 crore from Indian Navy and the Coast Guard. It usually takes 7-8 years for a new player to procure the licence and build the business.

The defence sector has attracted India Inc's big names from the Tatas to the Ambanis, with Prime Minister Narendra Modi's 'Make in India' pitch adding lustre to it. The impending acquisition of Pipavav could be the first big M&A deal in a sector with growing investor interest.

Courtesy: The Times of India