Banking

Bankruptcy Court Admits Insolvency Plea Against Anil Ambani’s Reliance Naval

The move paves the way for a possible liquidation of the firm if no acceptable bids are found.

New Delhi: Nearly 16 months after IDBI Bank first dragged Reliance Naval and Engineering Ltd (RNEL) to the National Company Law Tribunal (NCLT) for insolvency proceedings, the Ahmedabad bench of the bankruptcy court admitted the state-run lender’s plea.

“Further to our letter dated September 6, 2018, please note that the application by IDBI Bank Ltd for a claim of Rs. 1159.43 crore before NCLT Ahmedabad bench has been admitted,” the Anil Ambani-owned firm said in a stock exchange filing.

While this paves the way for a possible liquidation of the firm, if no acceptable bids are found, the company looks set to challenge the development in the appellate tribunal (NCLAT) in New Delhi.

IDBI Bank had first filed its claim in September 2018, when its dues were worth about Rs 1,250 crore. At the time, the bank’s lawyers had said most of the other lenders in the consortium had supported its move.

Since then, RNEL’s financial troubles have worsened. As the table below shows, the naval shipyard has defaulted on borrowings worth Rs 9,492 crore.

Table 1 Disclosed Defaults as of December 31, 2019

Company Default Amount Total Indebtedness
Reliance Communications Rs 28,825 crore Rs 32,575 crore
Reliance Naval and Engineering Rs 9492 crore Rs 9534 crore
Reliance Power Rs 685 crore Rs 934 crore

Source: SEBI.

The insolvency process however has been delayed over the last one-and-a-half years, as both lenders and the company have tried to find a mutually acceptable debt recast solution.

In July 2019, the banks rejected the Anil Ambani-owned firm’s proposal for want of a viability. Reports from the time suggested that the company had offered no proposal for an upfront equity investment or repayment of part of the loan.

A few months later, in September 2019, Bloomberg reported that RNEL had offered no new proposal and that bankruptcy proceedings would soon be started.

Reliance Naval was earlier known as Pipavav Defence and Offshore Engineering and had been a stressed firm from 2013, when it was controlled by the SKIL Group. The younger Ambani brother bought it in a fire sale in January 2016 as part of his attempt to foray into the lucrative defense business.

After the acquisition, Reliance ADAG provided financial support to the company and made substantial investment until January 2018, with a significant part of the money being used to repay lenders.

Under Ambani’s management, the company managed to snap up a few defence contracts under the Narendra Modi government.

In September 2016, RNEL emerged as the lowest bidder for a Rs 916 crore contract to build 14 fast patrol vessels for the Indian coast guard. In October 2018, the company stated in a press release that it had launched a training ship for the Indian Coast Guard.

In December 2018, India’s navy alluded to the company’s financial troubles by confirming that following delays in execution, it had encashed various bank guarantees given by Reliance Naval for a separate contract in which it was supposed to manufacture five offshore patrol vessels.

“Bank guarantees have been encashed by the navy. Punitive action has been taken, and it is a process,” navy chief Sunil Lanba had said then.

“There is no preferential treatment being given” to Reliance Naval, which is “undergoing corporate debt restructuring, and has been taken to court by their bankers, IDBI”, he added.

In its FY’18 annual results, the company took a gentle stab at Modi’s ‘Make-In-India’ push for the defence sector, noting that the process of awarding government contracts had been “deferred in respect of many large orders for a variety of reasons”.

A few months letter, in a letter to the-then defence minister Nirmala Sitharaman, the Anil Ambani firm cried foul over “inordinate delays” in contracts worth Rs 50,000 crore.

Perhaps the most controversial delay was in a massive Rs 20,000 crore warship deal, which led to mud-slinging between private bidders, with RNEL even lodging a complaint against Larsen and Toubro in which it alleged that a senior naval officer had favoured L&T because his son was employed there.