Lenders in talks with ARCs to sell Reliance Naval & Engineering loans

Lenders worried over their Rs 14,000-cr exposure in shipyard

With Hazel Mercantile's bid for Reliance Naval & Engineering, a bankrupt defence shipyard firm earlier owned by Anil Ambani group, currently stuck at the National Company Law Tribunal, lenders are planning to sell their loans to the asset reconstruction companies (ARCs). The company was sent for debt resolution in January 2020 after it defaulted to Rs 13,000-crore debt.

Lenders have initiated talks with ARCs to gauge the demand for the loans and a decision is expected in the ongoing quarter. “The Hazel Mercantile bid is pending in the NCLT and there is no clarity on when the litigation will get over this case. Some of the cases in the IBC are going on for more than five years. Hence lenders are looking at the option to exit their exposure by selling the loans,” said a source close to the development. In November last year, banks had initiated negotiations to sell their loans worth Rs 8,934 crore to the newly created National Asset Reconstruction Company but the sale failed to take off.

In March, Naveen Jindal’s JSPL, one of the bidders of the company, had moved the NCLT saying the winning bid by the consortium of Hazel Mercantile and Swan Energy did not meet the IBC bidding criteria. Hazel had won the bid by offering Rs 2,300 crore to the banks. The matter is pending.

According to the plan, the NARCL will first acquire assets by making an offer to the lead bank. Once NARCL’s offer is accepted, then another government backed firm, India Debt Resolution Company (IDRCL) will be engaged for the management and value addition.

Private companies in the shipyard industry had several issues including not getting adequate orders from the government/Indian Navy, Coast guard and ONGC, which needed offshore supply vehicles. Many of the shipyard companies expanded capacity, increased orders from the government and as the orders did not materialise, the bank loans became non-performing assets (NPAs),” said another source from the shipyard industry.

The economic downturn, decline in global trade and liquidity crunch further impacted the performance of the private shipyards and execution of existing order books of the private sector remains uncertain due to these unresolved issues with customers cancelling the orders in favour of government-owned shipyards.

The shipyard sector was so much in demand that several companies, including Munjals, Mahindra and Anil Ambani bid for Pipavav Shipyard in 2015 but Ambani finally won the race. The industry is dominated by government owned shipyards which get the lion’s share of orders from the defence sector.