The Hindu Business Line : GE Shipping hoots past SCI disinvestment

No management responsible to its shareholders can afford to block company (or borrowed) funds endlessly for an investment, howsoever attractive it is. Besides, given the current scene on the disinvestment front, no company will take a risk.

GREAT Eastern Shipping cannot be blamed for pulling out of the race for Shipping Corporation of India. The company had completed the due diligence on SCI in August and kept the cash ready for buying the 51 per cent Government stake. Now there is an uncertainty on the timing of the final price bid. More than nine months have elapsed since the process had begun.

No management responsible to its shareholders can afford to block company (or borrowed) funds endlessly for an investment, howsoever attractive it would be.

Besides, given the current scene on the disinvestment front, one would have hardly dared to take a calculated risk.

Yet, the sudden announcement last week by GE Shipping — the most serious contender for the controlling stake in the country's largest shipping company — to put on hold its plans, has given rise to speculations. A section of the observers held the view that GE Shipping, fed up by the undue delay in SCI's sale process, has decided to go in for acquisition of more fleet through its foreign subsidiaries. This makes sense as many companies are now talking about flagging off their fleet to escape the high level taxes in India. Out of GE's three overseas subsidiaries (in London, Singapore and Dubai), only the European one owns a ship.

Another view is that GE Shipping sees new investment potential in the offshore sector, particularly in view of the recent gas discoveries in the Eastern cost by Reliance industries. GE already has an offshore division operating OSVs and drilships. But the business opportunities from the new gas discoveries take long time to fructify.

Yet another opinion was that GE shipping is under pressure from bankers who have committed funds for acquisition of SCI. The company is understood to have tied-up with foreign banks thinking that the Government would stick to some kind of timeframe in the case of SCI, disinvestment of which was not politically opposed (as in the case of oil PSUs).

What fuelled the rumour mills most was the point made by the company that it would re-examine its decision as and when the final bids are invited. (Of course, depending on various factors such as business environment, timing of the bid, specific transactional matters etc).

This gave the impression that GE is not exiting from the scene but only putting its plan on hold. The widely held view is that GE shipping is still a serious (of course, cautious and most conservative) bidder for SCI. The other two parties that completed due diligence are Essar Shipping and the Sterlite Group.

Significantly, share price of SCI fell over 8 per cent on the very day of GE's announcement. Market price is a critical factor determining the reserve price of shares and the subsequent open offer price in disinvestment. In fact, from the 52-week high of Rs 112 SCI shares now rules around Rs 56-57.

The reaction of the Union Shipping Minister, Mr Vedprakash Goyal, to GE Shipping's announcement is interesting and significant. He said, "The Government will not dump SCI at any price. SCI is not a sick company, if there are no takers, the Government will continue to run it." The statement also took the Disinvestment Ministry officials off guard.

It may be interesting to note a comment made by a shipping analyst. "Tramp operators are known for `temporising' in the charter market. And GE Shipping has a history of tramping to success."

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