ABG Shipyard: How it plunged into debt and defrauded 28 banks of Rs 22,842 cr

ABG Shipyard, once the country’s largest private shipyard firm, is now making headlines for all the wrong reasons. The Central Bureau of Investigation booked the shipyard, its former chairman and managing director Rishi Kamlesh Agarwal and others for defrauding 28 banks to the tune of Rs 22,842 crore – significantly more than the amount of Rs 12,000 crore diamond trader Nirav Modi and Mehul Choksi had defrauded. 

On Monday, Finance Minister Nirmala Sitharaman said at a press conference after addressing the members of the RBI board that the ABG Shipyard account turned NPA during the UPA regime. "...in this particular case with that kind of a measurement, actually, I should say to the credit to the banks, they've taken lesser than what is normally an average time to detect these kinds of frauds," she said. 

The Beginning 

The firm, which supplied, repaired and built ships for the Indian Navy, Coast Guard and other private ships in many countries, was incorporated on March 15, 1985. ABG Group’s flagship company was promoted by Rishi Agarwal, a well-known player in the Indian shipbuilding industry.  

ABG Shipyard Ltd (ABGSL) had capacity to build vessels up to 18,000 deadweight tonnage (DWT) at Surat Shipyard and 1,20,000 deadweight tonnage (DWT) at Dahej shipyards. According to information accessed by India Today, the company had constructed over 165 vessels in the last 16 years, including newsprint carriers, self-discharging and loading bulk cement carriers, floating cranes, etc.

Known for its build quality, ABGSL soon earned the approval of international classification societies such as American Bureau of Shipping, Lloyds, Bureau Veritas, IRS and DNV. 

Within 20 years, the government had given clearance to the company to build warships and other vessels for the Indian Navy and the Coast Guard. 

The Peak

ABGSL was also awarded contracts by the Indian government to build pollution-control vessels. The company soon launched its initial public offering (IPO) of 85 lakh equity shares, priced at Rs 155-185 per share, in 2005. 

This was the company’s golden period as it had seen orders rushing in from Lamnalco, Cyprus, Vroon BV, along with repeat orders from Gujarat Ambuja Cements Ltd (GACL) for a self-loading and unloading vessel. 

This peak would only continue for the next few years as the company received contracts from all over the world, amounting to millions of dollars. 

In 2009, it was selected to build 11 high-speed water jet propelled interceptors for the Indian Coast Guard, followed by a $130-million contract by the Indian Navy to build two cadet training ships, and a $2.7-billion contract by the Shipping Corporation of India the next year. 

The company even acquired many other firms and made investments across the globe. 

The Fall

After 2012, the company started to see a fall in its financial conditions. As mentioned in the India Today report, a forensic audit report by Ernst & Young LLP from April 2012 to July 2017, stated that the ‘accused’ colluded and committed illegal activities, including diversion of funds, misappropriation and criminal breach of trust and for purposes other than for the purpose for which the funds are released by the bank. 

There were indications that loans taken from banks by ABG Shipyard were diverted to other subsidiaries. ABG Shipyard had subscribed to ABG Singapore preference shares amounting to $43.5 million. Financial statements of ABG Singapore for 2010 and 2011 showed loans obtained from ABG Shipyard and foreign investment made by ABG Singapore. 

The Master Restructuring agreement entered between ABG Shipyard and lenders dated March 28, 2014, noted a clause: "The Borrower shall have realised the investment of Rs 236,40,00,000 (Rupees Two Hundred and Thirty-Six Crores Forty Lakh) made by its subsidiary ABG Shipyard Singapore Pte. Ltd. in the units of Standard Chartered Trust (Cayman) Limited within 2 (two) months from the date of the CDR (Corporate Debt Restructuring) LoA (Letter of Approval).”

It is suspected that the payments made to ABG Singapore by ABG Shipyard was to divert the bank funds. It has also been alleged that properties were bought using security deposits of ABG Shipyard Singapore. 

The operations of the shipyard took a significant kick after the financial crunch and the debt of thousands of crores. The Indian Navy later terminated its contracts with ABG Shipyard. 

Diversion of funds to own subsidiaries, preferential transactions, bad investments and wrongful trading by the directors and top executives of firms are only some of the reasons for the fall of the biggest private shipyard of the country. To add to that, the global crisis and a subsequent fall in commodity demand and prices, and fall in cargo demand, impacted its operations. 

The cancellation of contracts also led to piling up of inventory, leading to significant increase in operating cycle, aggravating the liquidity and financial problems. The industry was going through a downturn in 2015 and the demand for commercial vehicles had dipped. Additionally, there were no fresh defence orders. 

The company’s accounts were declared non-performing assets on November 30, 2013. A restructuring was done but on July 30, 2017, it was declared NPA again. 

ABG Shipyard was referred to the National Company Law Tribunal (NCLT) for a corporate insolvency resolution process. A resolution professional was appointed who filed an application indicating that the accused have been found violating sections 43 (preferential transactions), 45 (undervalued transactions), and 66 (fraudulent/wrongful trading) of the Insolvency and Bankruptcy Code.

What It Owes

CBI in its FIR named ABG Shipyard, directors and promoters Rishi Kamlesh Agarwal, Santhanam Muthaswamy, Ashwani Kumar, Sushil Kumar Agarwal, Ravi Vimal Nevetia, ABG International Pvt Ltd and unknown bank officials for defrauding 28 banks of Rs 22,842 crore. 

CBI conducted searches at the residences of the accused and seized incriminating documents. Bank officials are also under the scanner for giving loans to the firm while it was involved in criminal activities.  

It owes Rs 7,089 crore to ICICI Bank, Rs 3,634 crore to IDBI Bank, Rs 2,925 crore to SBI, Rs 1,614 crore to Bank of Baroda, Rs 1,228 crore to Indian Overseas Bank, Rs 1,244 to PNB and crores more to 22 other banks.

(With inputs from Munish Pandey)

Also read: CBI books ABG Shipyard in biggest bank fraud case of over Rs 22,800 cr

Also read: ABG Shipyard fraud: No delay in filing of case, says SBI