India’s Mazagon’s acquisition of Colombo Dockyard

The announcement of the acquisition of a 51% controlling stake in Colombo Dockyard PLC (Dockyard) by India’s state-owned Mazagon Dock Shipbuilders (MDL) for $ 52.96 million from Japan-based Onomichi Dockyard last week captured both the local and international media interest. The finalisation of the transaction is expected to be completed within six months.  

Last Wednesday, in a stock exchange filing, the premier shipbuilding and heavy engineering firm disclosed that MDL was selected via a competitive process and the Indian company will obtain the control of the firm through the forthcoming rights issue. The development comes following the company’s disclosure last month that its Board was having discussions with a potential strategic investor to infuse capital and stabilise the company’s financial position. Earlier, speculation was rife that divestment of Dockyard was to take place in April coinciding with the visit of the Indian Premier Narendra Modi.

The financial distress of the Colombo-based firm has long been public knowledge. As at the previous financial quarter, Dockyard’s accumulated group losses ran into almost Rs. 7 billion, representing the gravity of its financial woes. In 2023, the firm suffered (in consolidated terms) a staggering loss of Rs. 11 billion and its performance deteriorated further in 2024 as it reported a loss of Rs. 2.5 billion. In fact, the company’s shares were transferred to the watch list with effect from 10 June 2024, as the company’s auditor raised concerns about its ability to continue operating as a going concern in the 2023 Annual Report. 

Dockyard was battered first by the COVID-19 pandemic and then by the economic crisis. The pandemic caused global supply chain disruptions, leading to soaring costs for materials and labour while the economic crisis resulted in a significant devaluation of the Sri Lankan Rupee, impacting the company’s finances and making it difficult to fulfil contracts. The shortage of foreign currency and the loss of key talent during the economic crisis had caused delays in the deliveries of vessels to customers and Dockyard had been forced to pay liquidated damages as well as to cancel two shipbuilding contracts after paying hefty compensation.

Apart from Onomichi Dockyard, entities associated with the Government such as the EPF, ETF, Sri Lanka Insurance Corporation, and the SLPA own close to 33% of Dockyard’s equity. The aforementioned institutions have incurred heavy losses from their investments in the beleaguered entity as some of them, in particular the EPF and ETF, bought the company’s shares at overvalued prices when the stock market was experiencing a bull run in 2010.

Dockyard’s new owner MDL is a public sector undertaking managed by the Ministry of Defence, with the Government of India holding an 80.82% stake. The Mumbai-based firm is predominantly reputed for manufacturing warships and submarines for the Indian Navy and offshore platforms and associated support vessels for offshore oil drilling. It also builds tankers, cargo bulk carriers, passenger ships and ferries.

 Maritime experts have concluded that the transaction is a win-win for both parties. Strong synergies are anticipated from the acquisition, as it could significantly advance MDL’s prospects of expanding its ship-repair business. As Sri Lanka’s largest shipyard, Dockyard is equipped to offer a comprehensive range of repair services, servicing over 200 ships annually. It also provides a full spectrum of services for all types of tankers, including crude oil, product, chemical, and LPG carriers. Even currently, most major Indian shipping companies send their vessels to Dockyard for repair work.

Beyond commercial gain, the acquisition carries geopolitical significance. The move by India’s state-owned shipbuilder is widely perceived as part of New Delhi’s efforts to counter China’s expanding maritime footprint in the Indian Ocean. India’s scepticism about the outsized Chinese presence in the island’s maritime infrastructure – Port City Colombo, Hambantota International Port, and CICT – is well documented.

Mazagon’s entry into Colombo Port is not merely a commercial bailout — it is a strategic assertion in the Indian Ocean’s unfolding power play.