Last week, Aban Offshore, the Chennai-based company that provides drilling services to oil companies, announced it had entered into an agreement with the Central Bank of India, to pay the bank Rs 121 crore in full settlement of its outstanding dues of Rs 155 crore. Aban intends to raise the money for it by selling some of its rigs.
Aban Offshore was established in 1986 by Mr. M.A. Abraham, a Keralite businessman in Chennai and for a couple of decades was doing very well. It owned a fleet of offshore drilling rigs (used in drilling for oil in the seas), drill ships and a floating production facility. It went public in 1988 and all through the 1990s, the company was a darling of the stock markets.
And then, the company fell into the same trap as several other Indian companies such as Tata Steel and Suzlon – make an overseas acquisition with borrowed money. In 2007, Aban bought Sinvest, a Norwegian drilling company, for $1.3 billion, for which it raised $800 million through its Singapore subsidiary, Aban Singapore Private Ltd. Sinvest had 8 premium jack-up rigs.
Even as the burden of debt was weighing down Aban Offshore, global oil prices began to nosedive from 2014, from above $100 a barrel to as low as $35, at one point in time in the next few years. Oil companies cut down on new exploration and as such, there was less demand for Aban’s services. And then, in 2020, the pandemic hit the world, bringing all activities, including oil drilling, to a standstill.
Today, Aban is saddled with a debt of $1.86 billion. It has net current liabilities of $2.6 billion. Central Bank of India took the company to the insolvency courts but later withdrew its petition, saying it would settle directly with the company. Aban, which has 20 rigs, has said it would sell seven of them to raise $ 146 million. It has told the auditors of its Singapore subsidiary that it had finalised sales of the seven rigs and was confident of repaying loans and cleaning up its balance sheets. The auditors are not convinced. They have expressed doubt about the ability of Aban to continue in business and have said they could not express an opinion on whether the company’s accounts, drawn up on a going-concern basis, are appropriate or not.
As such, Aban Offshore lies at a crossroads today. Its management believes it can raise money by selling rigs and pay off debts, and start with a clean slate. If it does, maybe it can survive—in which case, it would be a classical turnaround story. If it doesn’t, the country would lose another fine company that went down because it overstretched itself.
