The Public Sector Undertaking (PSU) Mazagon Dock Shipbuilders (MDL), which plans to enter commercial shipbuilding, is looking for equity partners for two proposed shipbuilding clusters. These clusters are planned in the cities of Digi in Maharashtra and Dugarajapatnam in Andhra Pradesh, with an estimated investment of 20,000 crore rupees over five to seven years.
The top executive stated that the company signed Memorandums of Understanding (MoUs) worth 30,000 crore rupees with the governments of Maharashtra and Andhra Pradesh within three days. Chairman and Managing Director (CMD) Captain (Retd) Jagmohan told Business Standard that he expects to receive the necessary approvals by December.
Details on the Clusters
Both MoUs provide for the creation of shipbuilding clusters, each capable of achieving an annual output of 1.2 million gross tonnage (GT). Jagmohan specified that the implementation will be phased: the first phase will have a capacity of 500,000 GT. The company aims to attract investments of 20,000 crore rupees over the next five to seven years, with the shipbuilding yard's equity component being financed by the Maritime Investment Fund (MIF).
Initially, MDL will form a joint venture with MIF, managed by SBI Ventures, with each party holding a 50% stake. MIF is an equity fund of 20,000 crore rupees under a larger Maritime Development Fund (MDF) of 25,000 crore rupees, announced by the government as part of a package worth 69,725 crore rupees to revitalize the maritime and shipbuilding sectors. The MDF includes MIF, which provides equity-based financing for maritime projects, and a 5,000 crore rupee interest rate incentive fund, which offers interest support to reduce borrowing costs for shipyards and other relevant marine enterprises. MIF is intended to mobilize private and institutional capital alongside government funding.
Jagmohan also noted that two specialized project companies will be established under the main holding company, whose operations and finances will be isolated. MDL is already in talks with large corporations that regularly use vessels for their business and trade activities, seeking to bring them on board as shareholders. The company envisions a commercial structure similar to Petronet LNG, whose shareholders include state-owned oil companies and GAIL (India).
The proposed investments will be financed through a combination of 70 percent debt and 30 percent equity. Overall, for both clusters, the company expects to require about 6,500 crore rupees in equity. Addressing concerns that MDL has taken on too much by undertaking two large projects, Jagmohan assured that the company possesses the financial soundness and experience to execute them. He emphasized that if the investments are split equally, he would require about 3,000 crore rupees, which is easily covered by existing funds.
MDL is the sole contender for the role of lead investor in both proposed shipbuilding clusters. The next step is attracting the remaining 70 percent of project financing. Jagmohan reported that investors from the US and Germany have already expressed interest, and the company is also discussing collaboration with international marine equipment manufacturers as co-investors. However, he added that MDL will not lower its stake below 26 percent under any circumstances.
In the long term, MDL is considering conducting an Initial Public Offering (IPO) of the shipyard to raise additional capital, but it will consider this option after the yard becomes operational. India aims to become one of the top five global shipbuilding powers by 2047, with a target annual output of around 4.5 million GT. The Maritime Amrit Kaal Vision 2047 includes investments of nearly 80 trillion rupees over the next 21 years, including 54 trillion rupees in shipbuilding.
