Indian corporate houses such as Adani Group and Mahindra & Mahindra may be tempted to look at the bankrupt shipyard at Pipapav in Gujarat run by Reliance Naval and Engineering Ltd (RNAVAL) after the government announced import ban on 101 weapons and military platforms by 2024 to boost defence production locally.

The Defence Ministry move would make Pipavav shipyard — which has a government permit to build war ships — a tad more attractive to Indian corporates that had earlier evinced interest in defence shipbuilding, according to shipbuilding industry sources.

For instance, Adani Defence System & Technologies Ltd, a unit of Adani Enterprises Ltd had filed an expression of interest last year in partnership with the State-run Hindustan Shipyard Ltd for construction of six submarines for the Indian Navy under the Project 75.

Mahindra & Mahindra had shown interest in buying Pipavav Shipyard from the original promoters before it was sold to Anil Ambani-led Reliance Infrastructure Ltd in 2015.

The import ban covers multi-purpose vessels, offshore patrol vessels, next generation missile vessels, anti-submarine warfare shallow water crafts, water jet fast attack craft, ammunition barges, 50-tonne Bollard-Pull tugs, survey vessels, floating dock, diving support vessels, pollution control vessels, anti-submarine rocket launchers and 500 tonne self-propelled water barges.

RNAVAL resolution case

RNAVAL is being sold under the Insolvency and Bankruptcy Code (IBC) to recover unpaid dues of ₹43,587 crore. Of this, the resolution professional (RP) has admitted ₹10,878 crore of dues of financial creditors, while another ₹32,693 crore is under verification.

Operational creditors have claimed another ₹1,922 crore from the company, of which only ₹485 crore has so far been admitted.

The Resolution Professional (RP), overseeing the corporate insolvency resolution process (CIRP) of RNAVAL, has extended the timeline for filing the expression of interest to August 21 and for qualified bidders to submit their resolution plans to September 30.

Among a few entities that have shown interest for Pipavav shipyard, the most serious appear to be Russia’s State-owned United Shipbuilding Corporation (USC), the largest shipyard in Russia with 40 yards. USC’s design offices are responsible for almost all warships that are built and developed for the Russian Navy and foreign customers.

But, sources in the shipbuilding industry said that USC’s interest could run into problems over the 74 per cent cap on foreign direct investment (FDI) in defence sector, if it wins the bid.

Self-reliant

The import ban on 101 items could require local capacity building to cater to the demand, particularly when two private yards — ABG Shipyard Ltd and Bharat Defence and Infrastructure Ltd — have gone down under the weight of huge debt in the past two years, an industry source said.

“All this ‘Atmanirbhar Bharat’ that they are saying is one thing, ultimately it has to translate into orders for ships in India,” he said.

This would mean such announcements have to be backed by easing defence procurement procedures.

“The government had tweaked the procedures in 2016 but it hasn’t made anything easier for government to place orders even on public sector yards. Still orders are not coming out. Ultimately, it is the procurement procedure that works,” he said adding that the government is working on new procurement procedures.

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