The CBI on 7 February 2022, against ABG Group’s flagship company ABG Shipyard, some of its top executives and some unidentified government officials and private persons on charges of abuse of official position, criminal conspiracy, fraud and breach of trust with criminal intent FIR registered.
This FIR has been registered on the basis of a complaint by the State Bank of India (SBI), in which it was alleged that the accused, through collusion, diverted the loan money from the bank and used them to other places and carried out many illegal activities. . This whole matter is now under the investigating agencies. At the same time, ABG Shipyard is currently facing insolvency proceedings in the National Company Law Tribunal.
Where did ABG Shipyard’s affairs begin to deteriorate?
Troubles for ABG Shipyard started after the global economic crisis of 2007-08. The company was in the business of shipbuilding, which became sluggish after the economic downturn. This resulted in loss of orders, piling up of inventories and finally financial fraud. A forensic audit revealed that the company flouted norms and diverted loan money.
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Although banks had extended a helping hand to the company to tide over its declining business by restructuring its loans under Corporate Loan Restructuring, ABG Shipyard’s bad phase did not stop it.
There was a time when banks used to queue up to give loans to ABG Shipyard. The company’s yards were located at Dahej and Surat in Gujarat, which are major centers of India’s shipping industry.
The company’s Surat yard had a capacity of 18,000 Dead Weight Tonnage (DWT), while the yard at Dahej had a capacity of 120,000 DWT. In the six years prior to 2008, ABG Shipyard has built over 165 ships including bulk carriers, interceptor boats, pusher tugs and flotillas. Orders from Indian and foreign companies have boosted business.
However, all this changed during and after the global economic crisis. Soon, the company faced shortage of working capital and a huge increase in the operation cycle, adding to its liquidity and financial problems. In the year 2015, the company did not get any new defense order, which added to its crisis.
Due to all these reasons, the company defaulted on the loan payment. Banks had restructured the company’s loan in March 2014, but these efforts failed to revive ABG Shipyard. Explain that in loan restructuring, steps are usually taken like reducing the interest payable on the loan or increasing the repayment period of the loan.
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Following the failure of the loan restructuring, the company’s account was declared a non-performing asset (NPA) in July 2016 and the same was implemented with effect from the retrospective date of November 30, 2013.
ABG Shipyards owes a total of Rs 22,842 crore to a consortium of 28 banks including SBI, ICICI Bank, IDBI Bank, Bank of Baroda, Punjab National Bank, Bank of India, Life Insurance Corporation of India, IFCI and Yes Bank.
What was found in the forensic report?
Ernst & Young conducted a forensic audit of the company’s financial data for the period April 2012 to July 2017 and presented its report to a group of 28 banks on January 18, 2019. In the same forensic report, it emerged that the company diverted the money taken in loans from the bank and used them for other purposes.
According to the forensic report, on March 31, 2016, the company had given Rs 603 crore to One Ocean Shipping, Rs 812 crore to another of its group company, ABG Engineering and Construction. Apart from this, 328 crore shares bought for AGB Singapore also indicate the use of loaned money from the bank. That is, shares were bought abroad by diverting bank loans. The forensic report found that the assets purchased from these funds were not accounted for in the accounting books of the company.
What will be the impact on banks?
Banks have declared ABG Shipyard as NPA in 2016 and have also made provisioning for its account. This means that there is unlikely to be any further impact on the balance sheets of banks. A senior banker who was part of the consortium of banks said, “The loss has been done and it has already been recovered. I do not expect any further shock to the banks from this incident.
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