Why the Navy is closely watching an insolvent shipbuilder

The Indian Navy too is tracking the insolvency proceedings of ABG Shipyard after the Navy was forced last year to terminate shipbuilding contracts worth Rs 1,455 crore five years after it was first awarded to the firm.

Written by Khushboo Narayan , Rashmi Rajput | Mumbai | Updated: July 30, 2018 7:08:38 am
ABG Shipyard, ABG Shipyard deal, ABG Shipyard debt, ABG Shipyard Navy deal, indian Navy, ABG Shipyard insolvency resolution ABG Shipyard was admitted to the corporate insolvency resolution process by the Ahmedabad bench of the National Company Law Tribunal (NCLT) on August 1, 2017. (Picture for representation)

It is not just banks that keenly await the resolution of 12 companies which have defaulted and are on the RBI’s first list of Insolvency and Bankruptcy Code (IBC) cases. The Indian Navy too is tracking the insolvency proceedings of ABG Shipyard after the Navy was forced last year to terminate shipbuilding contracts worth Rs 1,455 crore five years after it was first awarded to the firm.

The failure of ABG Shipyard, which owes close to Rs 19,000 crore to its creditors, to deliver three training vessels has the Navy questioning public-private partnerships in building warships and officials believe the termination of the contract has set the Navy’s schedule back by at least a decade.

The Navy in June 2011, had awarded a Rs 970 crore contract to ABG Shipyard, an Ahmedabad-based company, to build two cadet training ships, approximately 110 meters in length, to provide basic training and to carry out disaster relief, search and rescue operations. Subsequently in December 2012, ABG Shipyard, in a regulatory filing informed the exchange that it had bagged another order from the Navy to build another cadet ship for Rs 485 crore at its Surat and Dahej yard.

According to sources, the two shipbuilding contracts were on track till early 2014, but the project stalled after the company opted for corporate debt restructuring in September 2014 to repay loans to the tune of Rs 11,000 crore.

ABG Shipyard was admitted to the corporate insolvency resolution process by the Ahmedabad bench of the National Company Law Tribunal (NCLT) on August 1, 2017, and a month later, the Navy terminated its contracts with the debt-laden shipbuilder. Sources said that the failure of ABG Shipyard to build the training vessels for the navy has cast doubts on the success of public-private partnerships (PPPs) in defence manufacturing.

“It is in the resolution process now but the problem is that when they go through the resolution process, we (the Navy) are not getting the ship which we should have got by now. We now need to actually start the entire process, foreclose that contract and then go into fresh tendering, get fresh sanctions. That will put us behind at least by a decade. This has also given us many lessons,” said a Navy official.

According to the official, the experience of the armed forces so far in cases of private sector participation in warship building has been mixed. “We were optimistic and hopeful and somehow it has not happened in that fashion so far fully. In some of the cases, shipbuilding stopped in between and the shipyard started having fund flow problems,” the official said.

On July 12, ABG Shipyard in a stock exchange filing said the NCLT has rescheduled the hearing on Liberty House Group’s bid for ABG Shipyard to July 25. Liberty House, part of the $12 billion GFG Alliance Group, promoted by British industrialist Sanjeev Gupta has shown interest in a number of firms facing insolvency process including the shipbuilder.

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