Great Offshore, provider of offshore drilling and logistics services to oil and gas companies, is up fro grabs. Reason? The promoter of Great Offshore had pledged his shares to raise funds and failed to meet the margin calls (see box: The great gamble). The Great Offshore episode, which is still unfolding, seems like a scene from a Hindi soap opera, where owners fmd themselves in spot due to financial disaster and miscalculations. Of course, it comes along with a lot of emotional drama.
What is happening with Great Offshore and its promoters cannot be ruled out taking place in other companies as well. Great Offshore is just the first incident of promoters losing control after pledging their shares. Many more promoters have pledged a high proportion oftheir equity stakes in their companies. This could lead to change in management.
Typically, pledged shares act as security against loan. Now if the price of the pledged shares takes a drastic plunge, margin calls are triggered as the value of the security declines and it is not possible for the lender to recover the money ifthe borrower
In 2007, Vijay Sheth raised money by pledging his entire 15.5% equity stake in Great Offshore following a family settlement that required Vijay Sheth to buyout the equity stakes of his cousins in Great Offshore. Great Offshore was spun off from Great Eastern Shipping as part of the division of assets among the Sheth family members.
The arrangement was going on fine till the stock market took a turn for the worse. As the market started its southward journey from the all-time high of21,000 in January 2008, difficulties began to mount for Vijay Sheth as margin calls were triggered.
Vijay Sheth had pledged his stake with one of the financial institutions
defaults. In such a scenario, the borrower needs to pay money to the lender to recoup the losses or pledge more shares.
The situation was extremely bad a few months ago. However, as the stock market has rebounded smartly since March 2009, it has saved many promoters and companies from going the Great Offshore way. Moreover, promoters of a few companies that had pledged a higher proportion of their
based in Mumbai. Subsequently, Bharati Shipyard acquired the pledged shares for Rs 315. Interestingly, Bharati Shipyard had along maintained that it is a strategic investor and was not interested in taking over Great Offshore.
Ultimately, Bharati Shipyard came out with an open offer at Rs 344 a share to increase its equity stake in the company. The story again took a turn in June 2009, when ABG Shipyard jumped into the ring with an unsolicited offer at Rs 373 per share. The bidding war between Bharati Shipyard and ABG Shipyard is still going on.
It would take time for the dust to settle down. Irrespective of who gains control of Great Offshore, minority shareholders will be the real wrrmers.
equity stakes in their companies have revoked their pledges in the last three months. For instance, Delhi real-estate company Unitech. End March 2009, promoters of Unitech had pledged 77 .17% of their equity stake. This has come down to 72.31 %. This means between 1 April 2009 and 30 June 2009, promoters revoked over fivecrore pledged shares. Other promoters to have revoked pledged shares riding on improved market sentiments and rising stock prices include Emami, Jaiprakash Associates, Nocil, Bajaj Holdings, Godawari Power & Ispat, HEG, Pantaloon Retail, Suzlon Energy and Tata Motors.
To find out the vulnerable companies, Capital Market went through the shareholding pattern of 497 companies for which latest data (end June 2009) was available. Of these 497 companies, promoters of seven companies have pledged 100% of their equity holdings. These companies include Tata Coffee, Tuticorin Alkali, GSL (India), Kerala Ayurveda, Pentasoft Technologies, ETC Networks and Refnol Resins. Promoters of 18 companies have pledged more than 90% to 99% of their equity stakes. (see table:
The most vulnerable).
How real is the takeover threat or probability of promoters losing control over these companies? This depends on various factors like stock market conditions. A sharp downturn in equity valuations as seen in October 2008 after Lehman Brothers went bust could make life difficult for vulnerable promoters. The financial position of the promoters also matters. Tata group company Tata Coffee features in the list of the most vulnerable companies. Given the financial prowess of the Tata conglomerate, it is but understood that it cannot be a takeover target. However, promoters with weak financial standings could be on the losing side.
Also, the raider will examine the quality of assets up for grabs. As liquidity is still not flowing freely, arranging funds for takeover would be difficult for the raiders. Thus, unless a quality asset is on the block, the borrowers would remain untouched and safe. For instance, companies with corpo-
What is happening with Great Offshore and its promoters cannot be ruled out taking place in other companies as well. Great Offshore is just the first incident of promoters losing control after pledging their shares. Many more promoters have pledged a high proportion oftheir equity stakes in their companies. This could lead to change in management.
Typically, pledged shares act as security against loan. Now if the price of the pledged shares takes a drastic plunge, margin calls are triggered as the value of the security declines and it is not possible for the lender to recover the money ifthe borrower
In 2007, Vijay Sheth raised money by pledging his entire 15.5% equity stake in Great Offshore following a family settlement that required Vijay Sheth to buyout the equity stakes of his cousins in Great Offshore. Great Offshore was spun off from Great Eastern Shipping as part of the division of assets among the Sheth family members.
The arrangement was going on fine till the stock market took a turn for the worse. As the market started its southward journey from the all-time high of21,000 in January 2008, difficulties began to mount for Vijay Sheth as margin calls were triggered.
Vijay Sheth had pledged his stake with one of the financial institutions
defaults. In such a scenario, the borrower needs to pay money to the lender to recoup the losses or pledge more shares.
The situation was extremely bad a few months ago. However, as the stock market has rebounded smartly since March 2009, it has saved many promoters and companies from going the Great Offshore way. Moreover, promoters of a few companies that had pledged a higher proportion of their
based in Mumbai. Subsequently, Bharati Shipyard acquired the pledged shares for Rs 315. Interestingly, Bharati Shipyard had along maintained that it is a strategic investor and was not interested in taking over Great Offshore.
Ultimately, Bharati Shipyard came out with an open offer at Rs 344 a share to increase its equity stake in the company. The story again took a turn in June 2009, when ABG Shipyard jumped into the ring with an unsolicited offer at Rs 373 per share. The bidding war between Bharati Shipyard and ABG Shipyard is still going on.
It would take time for the dust to settle down. Irrespective of who gains control of Great Offshore, minority shareholders will be the real wrrmers.
equity stakes in their companies have revoked their pledges in the last three months. For instance, Delhi real-estate company Unitech. End March 2009, promoters of Unitech had pledged 77 .17% of their equity stake. This has come down to 72.31 %. This means between 1 April 2009 and 30 June 2009, promoters revoked over fivecrore pledged shares. Other promoters to have revoked pledged shares riding on improved market sentiments and rising stock prices include Emami, Jaiprakash Associates, Nocil, Bajaj Holdings, Godawari Power & Ispat, HEG, Pantaloon Retail, Suzlon Energy and Tata Motors.
To find out the vulnerable companies, Capital Market went through the shareholding pattern of 497 companies for which latest data (end June 2009) was available. Of these 497 companies, promoters of seven companies have pledged 100% of their equity holdings. These companies include Tata Coffee, Tuticorin Alkali, GSL (India), Kerala Ayurveda, Pentasoft Technologies, ETC Networks and Refnol Resins. Promoters of 18 companies have pledged more than 90% to 99% of their equity stakes. (see table:
The most vulnerable).
How real is the takeover threat or probability of promoters losing control over these companies? This depends on various factors like stock market conditions. A sharp downturn in equity valuations as seen in October 2008 after Lehman Brothers went bust could make life difficult for vulnerable promoters. The financial position of the promoters also matters. Tata group company Tata Coffee features in the list of the most vulnerable companies. Given the financial prowess of the Tata conglomerate, it is but understood that it cannot be a takeover target. However, promoters with weak financial standings could be on the losing side.
Also, the raider will examine the quality of assets up for grabs. As liquidity is still not flowing freely, arranging funds for takeover would be difficult for the raiders. Thus, unless a quality asset is on the block, the borrowers would remain untouched and safe. For instance, companies with corpo-
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