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ABG Shipyard narrows net loss to Rs 822 cr for quarter ended Dec 2016

Private sector shipyard company, ABG Shipyard Ltd has narrowed net loss to Rs 822.03 crore for December ended 2016 quarter against the net loss of Rs 1,266.22 crore reported during December ended 2015 quarter. Total income from operations rose to Rs 454.99 crore in the current review quarter vis-ŕ-vis the total income from operations stood at Rs 199.63 crore for year ago review quarter. The company is in deep financial crisis and its operations are closed, barring ship repairing business at very low level. Its Dahej yard is shut for last two years with agitative labour and staff. With this the management of the company has witnessed a high attrition rate of employees and scant available resources. Hence the company could not prepare and publish its financials in time. Further, the company is in process of converging its accounts to Ind-AS. The company has one primary identifiable, reportable segment, namely construction of ships and rigs. Owing to suspension of ship/rig building activities as yards, no income has been reported from construction of ships rigs. Income from operations for the period represents ship repairs.

 Rs 1,761 cr debt burden

 Loans and advances amounting to Rs 1,761 crore are outstanding from subsidiaries and related parties. The management is of the view that considering the relationship of the company with these parties charging of interest is not expedient. Further in view of the management even though these outstandings are old, they are considered good and recoverable. There are advances to various parties for material and services,  those are oustanding for long time. In view of cessation of activities in yards, the materials and services could not be called from such parties. The management considers that no provision to be made and these are considered good and recoverable. The company has requested/approached all its lending banks institutions to provide account statements, details, transaction documents and confirmation of balances, which many banks institutions have not provided. In absence of which the company has recorded the transactions including classification of liabilities in current and noncurrent based on available details and documents and estimations.

 Non-payment of Rs 499 cr govt sponsored ship building subsidy  

 The company had recognized for subsidy under ship building subsidy scheme in earlier years, out of which subsidy of Rs 499.64 crore is still receivable as on 31st December 2016. The receipt of aforesaid subsidy is dependent upon completion of vessels and compliance with other terms and conditions of the shipbuilding subsidy scheme of the government of India. The completion depends on availability of working capital as well as ship owners capability to make progress payment and to take delivery of these vessels in a depressed shipping market economic scenario. The management is hopeful that it will be able to get funds to complete the vessels and deliver the same.

 CDR default and net worth erosion

 The company has defaulted in repayment of loans and covenants of the CDR scheme of lenders. There has been suspension of operations at Dahej yard and low key operation at Surat yard and its net worth has eroded. Certain lenders/creditors and statutory authorities have initiated legal proceedings against the company including filing of winding up petitions and recalling the loans. The company has approached the bankers and looking for strategic investors to infuse further fund. Considering favourable policies of the government of India for ship building company’s asset base and potential of its ship building facilities, the management plans to resume normal activities in the company, and hence the financial statements have been prepared assuming that the company will continue as a going concern.

 Financial squeeze puts shipyard construction on hold

 The company has been constructing/expanding facilities at Dahej yard to increase its ship/Rig building capacities. Due to financial constraints there has been a prolonged suspension of such construction activities. The management considers such suspensions as temporary in nature. The physical condition of these assets under construction is good and further construction would resume on availability of funds. At such time, the management will assess any increase in cost, replacement etc. So in view of the management, the recoverable amount is more than carrying value and as such no amount needs to be recognised in the financial statement as impairment loss. Considering the dismal global industry scenario, cancellation of certain ship building contract and uncertainty about the operations, the company is continuously endeavoring to align the carrying cost of its inventory to the market/realisable value based on technical/management’s valuation. Thus, other expense and change in inventory for the period include retrenchment in value of inventory to the tune of Rs 200.81 crore.

 Forex loss

 Finance cost for the quarter ended includes foreign exchange loss of Rs188.75 crore on account of invocation of guarantees by the buyer. The company has investments in subsidiaries and other entities amounting to Rs 220.12 crore as on date. The investments are strategic and long term in nature and thus there is no diminution other than temporary in the value of investments. Hence, in the opinion of the management, no adjustment is required to be made for diminution in value.


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