ABG Shipyard Limited is a Surat-based shipbuilding company in India. ABG Shipyard Ltd is a part of the ABG Group of companies with diversified business interests. Established in 1985, it is headquartered in Mumbai. It has shipbuilding operations in Surat and Dahej in Gujarat port. Following its acquisition of Western India Shipyard Limited in October 2010, it operates a ship repair unit in Goa which is the largest ship maintenance facility in India.
ABG became one of the largest private shipbuilding companies in India with a capacity to manufacture vessels up to 20 tonnes in weight.
Everything was going smooth and slow for the ship-building company. Despite gaining such a huge reputation and success in the shipbuilding industry, in 2012 the finances of ABG started dwindling which was later discovered by a forensic audit by EY(forensic auditing service company) initiated by SBI.
During the audit, it was alleged that the top management of the company was involved in the diversion of funds illegally causing criminal breach of trust with an intent to use the bank’s funds for personal gains and personal uses possibly to tax havens. SBI stated that funds were used to pay other lenders and get letters of credit.
The London-based professional services firm conducted a forensic audit of ABG Shipyard and submitted its report in January 2019 to a group of 28 banks that were allegedly duped and not abiding by the Surat-based shipbuilder in the country’s largest country scam.
Earlier in October 2016, Standard Chartered bank also filed a criminal complaint with the Economic Offenses Wing in Maharashtra for cheating them of Rs 200 crore loan as they failed to repay the short-term loan they sought from the bank in April 2012.
The probe into the alleged fraud caused by ABG Shipyard Ltd by the Central Bureau of Investigation (CBI) has revealed that at least 98 companies were floated by the accused to divert funds. The diverted funds were then used to create personal assets and for the purpose of evergreening of loans.
Between 2012 and 2017, ABG Shipyard Ltd (ABG SL), purportedly defrauded banks of Rs 22,842 crore total.
The extent and the scale of the alleged fraud is limitless and was totally unexpected, but the crux of the this scam, as the Central Bureau of Investigation (CBI) is discovering, was the novel way in which the company apparently created a web of transactions to cheat a consortium of 28 banks including SBI, IDBI and ICICI.
According to CBI sources, ABG SL took loans from these banks and then diverted them. It allegedly made investments in overseas subsidiaries from the loan which was sanctioned to it, bought assets in the names of affiliated companies, and also transferred money to several related parties.
Audit by EY that brought ABG to the cover page
The suspected fraud was discovered during a forensic audit done by Ernst & Young LLP (commonly known as EY) in January 2019 for the months of April 2012 to July 2017. According to the FIR, the audit discovered that the fraud occurred over this time period.
According to the SBI’s complaint, fraud was committed by “diversion of funds, misappropriation, and criminal breach of trust, with the goal of gaining unlawfully at the expense of the bank’s finances.”
ABG SL currently owes a total of Rs 22,842 crore, according to the FIR. It owes Rs 7,089 crore to ICICI Bank (which led the consortium), Rs 2,925 crore to SBI, Rs 3,639 crore to IDBI Bank, Rs 1,614 crore to Bank of Baroda, Rs 1,244 crore to Punjab National Bank, Rs 1,327 crore to Exim Bank, Rs 1,244 crore to Indian Overseas Bank, and Rs 719 crore to Bank of India.
According to CBI sources, the company received loans from these banks between 2005 and 2010, but the fraud was discovered only after a forensic assessment. According to the SBI’s complaint, the fraud took place between 2011 and 2017.
“Based on the preliminary assessment, the loans appear to have been approved between 2005 and 2010.” The money appears to have been distributed without sufficient diligence on the part of the banks. “The amount of fraud under investigation could be greater or less than what is now indicated,” a CBI source said.
Illegal Investments
According to the SBI complaint, ABG SL channelled the loan funds by paying them to associated parties.
Money was transferred to another business called PFS Shipping India Ltd, according to the forensic audit, which was based on the ledgers of One Ocean Shipping Private Ltd (OOSPL) and ABG Engineering and Construction (ABG EC) Ltd. The receivables were then allegedly changed to ABG SL by PFS Shipping.
The money borrowed from banks was used to repay debts and pay for other expenses of group firms, as well as letters of credit, according to a CBI source.
Furthermore, according to the Master Restructuring Agreement (MRA), ABG SL should have recovered a Rs 236 crore investment in Standard Chartered Trust units made by its subsidiary ABG Shipyard Singapore within two months of the date of Corporate Debt Reconstruction. Rather, ABG SL is said to have deposited US$ 43 million in ABG Singapore, which was then “possibly misdirected.”
“The company had applied for approval to invest in abroad companies, which is standard practise in the industry. “However, a large portion was re-routed for some other purpose than what was disclosed,” the CBI source said. “It is assumed that the funds were moved to tax havens.”
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2008 dot com Bubble was the root cause
The main company of the ABG Group, which is in the shipbuilding and repair business, is ABG Shipyard Ltd. The firm, which was founded in 1985, has shipyards in Gujarat’s Dahesh and Surat. According to CBI sources, it was financed through a consortium agreement with 28 banks. ICICI Bank was the most successful bank.
The company was impacted by the global financial crisis of 2008, resulting in it being a non-performing asset, according to the FIR.
“ABG SL built approximately 165 boats in the last 16 years, including specialized vessels such as newsprint carriers, self-discharging and loading bulk cement carriers, but the global crisis devastated the company,” according to the FIR.
It goes on to say that there was a lack of working capital as a result of the crisis, which resulted in a “substantial rise in the operating cycle, consequently aggravating the liquidity and financial difficulties.”
On November 30, 2013, the company’s account was designated as a non-performing asset (NPA).
Several attempts were made, according to the SBI, to resurrect ABG SL’s business. This included all lenders restructuring the account under the CDR procedure in March 2014. However, because the shipping industry was experiencing “one of the worst downturns ever seen,” the company’s operations were unable to recover, according to the FIR.
It goes on to say that there was a lack of working capital as a result of the crisis, which resulted in a “substantial rise in the operating cycle, consequently aggravating the liquidity and financial difficulties.”
On November 30, 2013, the company’s account was designated as a non-performing asset (NPA).
Several attempts were made, according to the SBI, to resurrect ABG SL’s business. This included all lenders restructuring the account under the CDR procedure in March 2014. However, because the shipping industry was experiencing “one of the worst downturns ever seen,” the company’s operations were unable to recover, according to the FIR.
