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Cochin Shipyard files draft papers for IPO; government to divest 10%

24 March, 2017

Government-owned Cochin Shipyard Ltd (CSL) on Thursday filed a draft red herring prospectus (DRHP) with the capital markets regulator Securities and Exchange Board of India (SEBI) for an initial public offering (IPO).

CSL, India’s largest public sector shipyard, is looking to raise an estimated Rs 1,500 crore (around $230 million) from the maiden public offering targeted for FY2017-18, two persons familiar with the development told VCCircle. The IPO would value Cochin Shipyard at an estimated Rs 4,000 crore (around $612 million).

The public issue comprises a fresh issue of 22.65 million shares besides an offer for sale of 11.32 million shares by the government, as per draft papers.

The offering will result in a stake dilution of 25% post offer equity. Of this, the government will divest 10% stake in the firm, according to DRHP. This will make the company compliant with the SEBI norm of 25% minimum public float.

The IPO is part of a record disinvestment target set for the forthcoming financial year by Finance Minister Arun Jaitley in the Budget.

The government is aiming to raise Rs 72,500 crore through capital receipts that comprise minority sales and strategic disinvestments as well as via listing of state-owned companies, including insurance firms. This surpasses the Rs 69,500 crore proposed by the government previously.

The government also intends to initiate share sale in unlisted companies such as aerospace and defence company Hindustan Aeronautics Ltd and Airport Authority of India Ltd, among half a dozen firms.

State-owned housing and urban infrastructure financing company Housing and Urban Development Corporation Ltd (Hudco) is also looking to go public with a 10% stake sale by the Centre.

Here’s a snapshot of the Cochin Shipyard IPO:

Issue: The government owns 100% stake in Cochin Shipyard. It will divest 10% stake besides issuing fresh shares representing 15% stake through the IPO. After the issue and listing, the government’s stake in the company will stand at 75% in compliance with SEBI’s minimum public shareholding norms.

The IPO is estimated to be worth Rs 1,500 crore. This will value the Kochi-based company at Rs 4,000 crore.

Use of proceeds: The company aims to use Rs 443 crore to set up a new dry dock within its existing premises, besides spending Rs 229.5 crore on building an international ship repair facility near Cochin Port Trust.

The company will use an undisclosed amount (not greater than 25% of proceeds from the fresh capital) towards meeting general corporate expenses.

Bankers: SBI Capital Markets, Edelweiss Financial Services and JM Financial Institutional Securities are financial advisors to the issue.

Lawyers: Khaitan & Co is the Indian legal counsel representing CSL and selling shareholders while Herbert Smith Freehills LLP is international legal counsel. Cyril Amarchand Mangaldas is representing the merchant bankers.

Company: CSL was incorporated in March 1972 and started operations in 1975. As of 31 March 2015, it was the largest public sector shipyard in India in terms of dock capacity, according to a report by rating agency CRISIL.

CSL caters to clients engaged in India’s defence segment and global commercial shipping sector. It also undertakes shipbuilding and ship repair activates besides offering marine engineering training.

As of 31 January 2017, CSL had two docks with a total capacity of 235,000 deadweight tonnage (DWT), according to CRISIL.

Financials: For the six months ended 30 September 2016, CSL reported a profit after tax of Rs 184.52 crore on revenues (operations) of Rs 1,027.46 crore.

For FY2015-16, CSL reported revenues of Rs 2,099.28 crore compared with Rs 1,663.23 crore in the corresponding period last year.

Its net profit stood at Rs 258.82 crore at the end of financial year 2015-16 compared with Rs 71.22 crore in the previous year.

Its top-line has grown at a compounded rate of 9.25% per year from FY2011-12 to FY2015-16, as per draft papers. Its profit has grown at a CAGR of 16.47% in the same period.

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Cochin Shipyard files draft papers for IPO; government to divest 10%

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