Companies

IDBI Bank takes Reliance Naval to bankruptcy court

P Manoj Mumbai | Updated on September 07, 2018

Reliance Group chairman Anil Ambani.   -  BusinessLine

Anil Ambani’s naval shipbuilding gamble fizzle out

Indian Navy’s tender for building four landing platform docks (LPD) worth an estimated Rs 20,000 crores will face turmoil after state-run lender IDBI Bank Ltd hauled debt-laden ship builder Reliance Naval and Engineering Ltd to the bankruptcy court for loan default.

Reliance Naval owes Rs 5,349.17 crore to a clutch of lenders as on March 2018 of which the dues to IDBI Bank alone is about Rs 1,250 crore. “The petition will come up for hearing before NCLT next week,” said Nishit Dhruva, managing partner of law firm MDP & Partners, who is representing IDBI Bank in the case. “Most of the banks in the consortium have supported IDBI Bank’s move to seek resolution under the IBC Code”, he said.

If the Ahmedabad bench of the National Company Law Tribunal (NCLT) admits the petition filed by IDBI on 5 September and starts the insolvency process under India’s bankruptcy law, the bids submitted by Reliance Naval runs the risk of being rejected by the Indian Navy, leaving only L&T in the fray for the project. “This will have serious implications,” said a person familiar with the Navy’s tendering process.

Defence deal

Anil Ambani-led Reliance Naval and Larsen & Toubro Shipbuilding are competing for the blockbuster contract that would give a fresh lease of life to their order starved yards in Pipavav, Gujarat and Kattupalli, Tamil Nadu, respectively.

“It will lead to a single bidder scenario and the government will not encourage that. This is particularly so given the controversy surrounding a major defence deal and the general elections just a few months way. So, it looks like the tender is going to collapse, if that is the case,” he said.

The biggest gainers in such an event would be state-run defence yards such as Mazagon Dock Shipbuilders Ltd and Garden Reach Shipbuilders & Engineers Ltd (GRSE) if the Navy decides to take the ‘nomination route’ (without tenders) to place the orders.

However, if the project is re-tendered, L&T would have a tough time to qualify given the erosion in its net worth due to continuous losses. “Yards with negative net worth are not allowed to bid for naval contracts as per the defence procurement procedures,” said a Mumbai-based shipbuilding executive familiar with naval purchase procedures. But, L&T’s shipbuilding unit could use the parent company’s financial clout to sail through the qualification stage, if the Indian Navy accepts such a “guarantee”, he added.

L&T said it is willing to extend such guarantees. L&T and Reliance were banking on the LPD contract and further orders to rev-up up their yards to full potential after being hit hard by delays in placing orders by the Navy.

If NCLT flags off the resolution process under the Insolvency and Bankruptcy Code (IBC), Reliance will become the third local shipbuilder to face bankruptcy proceedings after ABG Shipyard Ltd and Bharati Defence and Infrastructure Ltd.

Given the tardy pace of ordering by the Navy, it is anybody’s guess whether Reliance Naval will attract bidders under the IBC process, especially so, going by the fate of both ABG and Bharati that also had license to build warships from the defence establishment.

ABG was lucky enough to get a bid and that too by an entity who wants to turn it into a ship-breaking yard. In the case of Bharati, the resolution plan was submitted by the lender itself. Edelweiss Asset Reconstruction Co Ltd – to whom Bharati owes money.

Reliance did not respond to an email seeking comment. A few days ago, Anil Ambani said that he had submitted a resolution plan to the lenders and was awaiting their approval.

IDBI Bank’s move also means that Ambani’s gamble to enter India’s naval shipbuilding business by acquiring the yard located at Pipavav from the Gandhi Brothers for Rs 2,082 crores in 2015 has failed to take off despite being seen as a “sunrise sector” by private firms. It’s a scenario that anybody willing to look at the naval shipbuilding sector cannot ignore, a shipbuilding consultant said.

Published on September 07, 2018

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