Auditors of ABG Shipyard Ltd. raised concerns over its future as the debt-ridden shipbuilder said it is in a “deep financial crisis” and has closed most of its operations.
The company has suffered recurring losses and its networth has eroded, independent auditor GMJ & Co. said in the company’s earnings statement, raising significant doubt” about its ability to stay a “going concern”.
Lenders initiated the process to sell the shipbuilder’s assets (WHEN) after the company defaulted on loans. Led by State Bank of India Ltd. and its private peer ICICI Bank Ltd., banks together have a debt exposure of Rs 14,000 crore to ABG Shipyard.
The shipbuilder was taken out of a debt restructuring scheme on March 1 after it defaulted on payments under the recast plan, the company said in its disclosure.
Auditor’s Red Flags Lack of Provision
The auditor said the company is yet to provide for over Rs 1.945 crore worth of expenses incurred on assets at its facility in Dahej, Gujarat.
It couldn’t comment on the value of rigs and ships in the books of the company as the technical evaluation is not complete, the auditor said.
Nearly Rs 1,762 crore advanced as interest-free loans to related parties remain outstanding for several years with no repayment date, the auditor said.
ABG posted a loss of Rs 1,169.7 crore on a revenue of Rs 4.7 crore for the first half of the financial year 2016-17.
High rate of attrition left it with little resources to prepare and publish financials in time, the company said in its notes to half yearly earnings announced on March 21.
Its Dahej shipyard has been shut for the last two years and is facing labour agitation. Barring basic repair work at Surat, all its operations have been shut down, the company said.
ABG started expansion of its Dahej facility for ship and rig construction, but abandoned the plan amid financial constraints, it said.
Lenders Face Up To 60 Percent Haircut
Lenders to the company have SBI Capital Markets Ltd. and PricewaterhouseCoopers Private Ltd. to shortlist investors to acquire majority shareholding, management and control of the ABG Shipyard, according to advertisements placed in newspapers.
The process is expected to take a couple of months, but an announcement is expected by April-end, said a person involved in the asset-sale process without willing to be identified as talks are not public.
Lenders may have to take a haircut of up to 50-60 percent of their total exposure, the person said.