Navy cancels Reliance Naval's Rs 2,500 cr offshore patrol vessel contract

The Indian Navy has cancelled Reliance Naval and Engineering Ltd's (RNEL) Rs 2,500-crore naval offshore patrol vessels (NPOVs) contract, owing to delay in delivery of the vessels, according to sources aware of the development.

The contract was cancelled two weeks ago due to the delay in the delivery of the vessels, they said.

The contract to build five warships was signed with the company in 2011, much before the Reliance Group took over the Gujarat-based shipyard from its erstwhile owner Nikhil Gandhi.

The Reliance Group took over Pipavav Defence And Offshore Engineering Ltd in 2015 and later renamed it as Reliance Naval and Engineering Ltd (RNEL).

RNEL did not offer comments on the issue.

The cancellation of the NOPV contract has cast a shadow over the bidding process of RNEL, which is currently going through the debt resolution process in the National Company Law Tribunal (NCLT).

IDBI, the lead banker of the consortium of lenders of RNEL, had taken the company to the NCLT Ahmedabad due to the default in loan repayment.

RNEL has an outstanding debt of over Rs 11,000 crore.

In August, 12 companies had submitted expressions of interest (EOI) for RNEL.

These included APM Terminals, United Shipbuilding Corporation (Russia), Hazel Mercantile Ltd, Chowgule Group, Interups (USA), Next Orbit Ventures, ARCIL, IARC, JM ARC, CFM ARC, Invent ARC and Phoenix ARC.

These companies are required to submit their final bids by October 31.

The sources said that out of the 12 companies, three major players with experience in the business, APM Terminals, United Shipbuilding Corporation (Russia), and Chowgule Group have opted out of the bid process of RNEL.

APM Terminal has conveyed to the resolution professional (RP) of RNEL that it is not interested in submitting any bid as the Gujarat Maritime Board's (GMB) approval is not for the terminal business and the company is not into the shipbuilding business.

Another company, United Shipbuilding of Russia, is also not keen on bidding because its management believes that pipeline of new defence naval business is not clear and the government has also cancelled the NOPV contract of RNEL. Hence, in the absence of any clear future visibility of the business, it does not make any sense to bid for RNEL shipyard.

Another company with experience in this sector, Chowgule Group, has reservations over the bid condition of furnishing a Rs 5 crore bid bond and Rs 75 crore personal guarantee, and hence, opted out of the process.

In the event of these three companies walking away, only nine asset reconstruction companies (ARCs) are left in the fray.

According to the sources, with these key companies walking away, the last date for bid submission is likely to be extended.

RNEL may meet the same fate as two other private shipyards -- ABG Shipyard and Bharati Shipyard.

Both, ABG Shipyard, with a debt of over Rs 19,000 crore, and Bharati Shipyard, with a debt of over Rs 13,000 crore, are already under liquidation, and lenders are likely to get less than Rs 800 crore and Rs 600 crore, respectively.