Date:04/06/2006 URL: http://www.thehindubusinessline.com/2006/06/04/stories/2006060403090300.htm

Back ONGC to relent on GE Shipping de-merger

Jayanta Mallick
Pratim Ranjan Bose

Kolkata , June 3

ONGC has decided to issue a conditional approval for the court-approved de-merger of offshore services business of Great Eastern Shipping to Great Offshore Ltd.

An ONGC source told Business Line this evening that the company would make an official statement in this regard on Monday.

But, he did not clarify what rider ONGC might attach for the formal approval.

Sources in GE Shipping said that at the last meeting with ONGC officials in May, the latter insisted on performance guarantee for all the unexecuted contracts, to be handled by Great Offshore after official separation of business.

If ONGC, as contracting counter party or debtor, does not approve the scheme of arrangement, approved by the Bombay High Court on January 27, 2006, then the scheme would become invalid after expiry of 6 months from the date of court's approval (July 26, 2006).

To make the de-merger possible, in that situation, a fresh scheme will have to be placed before the High Court to seek shareholders and creditors okay, according to corporate law experts.

According to sources in both ONGC and GE Shipping, ONGC has the right to disapprove the scheme.

The de-merger, according to the scheme, is to become effective retrospectively from April 1, 2005 if all the necessary approvals are obtained. GE Shipping has already made it clear that ONGC's insistence on performance guarantee for the contracts, to be executed by the new entity Great Overseas, was ruled out. "It would be separate a company; promoters through an inter se arrangement among themselves would divide the ownership and controlling stake in the businesses also. So, legally, technically and financially, the "guarantee" sought by ONGC is out of place", a GE shipping official explained.

ONGC has the option to cancel about 40 contracts entered into with GE Shipping (now being transferred to the proposed entity) for offshore drilling and logistics support services. But in that case, ONGC will be liable to pay hefty penalty, upwards of Rs 100 crore, according to rough estimates.