Lenders zero in on Hazel Mercantile offer for Reliance Naval and Engg

Indian lenders have zeroed in on an offer made by Mumbai-based Hazel Mercantile for Reliance Naval and Engineering, a bankrupt shipyard based in Gujarat. Hazel has made an offer of Rs 2,500 crore for the company after lenders asked it to sweeten its earlier offer.

Reliance Naval and Engineering was sent for debt resolution in January last year under the Insolvency and Bankruptcy Code 2016 after it defaulted on Rs 12,500 crore of debt. Bankers said the second bidder, Naveen Jindal group could not match Hazel's offer and the difference between the two offers was very high,” said a banker asking not to be quoted. Jindal had offered around Rs 400 crore. Hazel had earlier offered Rs 2,100 crore for the company.

If all lenders vote for Hazel's proposal, it will be 20 per cent recovery of loans for the banks which is better than five per cent recovery in the recent cases including Videocon Industries and Siva Industries which were approved by banks but are mired in litigation.

A new management will help Reliance Naval and Engineering to bid for orders from the Indian Navy, Coast Guard and the Oil and Natural Gas Corporation for patrol boats and offshore supply vehicles.  The company operates India’s largest integrated shipbuilding facility with a dry dock. Its facility also has the only modular shipbuilding facility with a capacity to build fully fabricated and outfitted blocks.

The company’s debt went up after it failed to deliver the ships in time to ONGC. The oil major had placed an order for 12 offshore supply vessels in 2009-10. Of this, only seven OSVs were delivered till 2015-16. ONGC then canceled the order and invoked the bank guarantees in fiscal 2018-19 – leading to additional financial burden on the company. An arbitration petition filed by the company against ONGC is currently pending.  After the company was sent for debt resolutions, its orders dried up and it reported revenues of Rs 75 crore for the fiscal ending March 2021 and a loss of Rs 1,621 crore.

Once operational, the company will be able to support the Indian defense forces by manufacturing technology intensive ships in India thus saving foreign exchange. At present defense ships are constructed mainly in the government owned yards.