Reliance Naval’s eligibility question holds up warship orders worth Rs 63,000 crore (Rs 630 billion)

[_Anonymous_]

Well, that is something one has to see in the clauses/ agreement of this project yes? where is it up to Reliance to procurement said systems? or are they just supply labour for integration?

Second, Just because other vendors are not getting paid (pls provide info on this ) - this doesn't mean BEL has to withhold supply - there is NO BON HOMME among vendors. Thus I still don't buy your reasoning! + BEL is a DPSU - they can be literally be pulled up by MoD for such actions no?

To my mind, all such contracts for building ships issued by the MoD on behalf of the IN is for the entire package. Of course, I claim ignorance of the actual terms. It's just an assumption.

As regards, Reliance - ADAG, please go thru the attached article. It's a lengthy read but gives a fairly accurate picture of the financial health of Anil Ambani's group cos including RNaval.

On a Wing and a Prayer

 

[_Anonymous_]

DPSUs are almost always like that. Not even one DPSU has ever lived up to its commitment.

And they always get handed deals to save their behinds.

Here's an example:
India in mission mode to save Philippines navy deal

I think we ought to rid ourselves of the fallacy that just because DPSU's functioned in a totally arbitrary & unprofessional manner, we ought to excuse the Pvt Sector too. I thought thanks to the prevailing attitude of the DPSU's , that's one of the reasons the incumbent GoI is promoting pvt defence contractors to begin with.

If RNEL is kicked out of the LHD process, it won't have any bearing on DRAL. It's irrelevant.

I was referring to the political fallout of such an action not the pre qualification process per se.

The point is if the navy needs their LHDs in time, RNEL has to continue to be part of the process, or it will have to be started against from scratch since it will become a single vendor situation.

If RNEL stays, then L&T can be announced the winner, and we will have the Juan Carlos in our fleet. Of course, there's a good chance RNEL's bid is cheaper and they could win, but their ability to deliver can be questioned. Do you see how sticky this situation is?

Then the tender will fall apart, and has to start again, like MMRCA 2.0.

Point understood and agreed upon.

 

[randomradio]

My answer was based on a supposition by a fellow member Guardian Red who quoted PKS. I'm neither privy to the what's the real issue nor have I come across any literature stating the real reasons behind the delay. Hence, I'd take your word for it.

Having said that, Reliance cannot wash it's hands off just because they weren't involved in the deals signed by their predecessor. Taking full management control of any enterprise also entails taking responsibility for all its assets, liabilities & actions.


I think we ought to rid ourselves of the fallacy that just because DPSU's functioned in a totally arbitrary & unprofessional manner, we ought to excuse the Pvt Sector too. I thought thanks to the prevailing attitude of the DPSU's , that's one of the reasons the incumbent GoI is promoting pvt defence contractors to begin with.

The problem is RNEL is being held to standards that are impossible to achieve by anybody. Reliance hold 36% of the company.

And it's not like they have no ship building experience. RNEL is one of our most active shipyards.

They are getting caught with silly problems actually.
Reliance Naval sues ONGC for terminating pact for 12 vessels

 

[_Anonymous_]

The problem is RNEL is being held to standards that are impossible to achieve by anybody. Reliance hold 36% of the company.

And it's not like they have no ship building experience. RNEL is one of our most active shipyards.

They are getting caught with silly problems actually.
Reliance Naval sues ONGC for terminating pact for 12 vessels

While RNaval is definitely a pioneer & the most active of our pvt shipyards, it can't be denied that they're up shit creek without a paddle, sometimes for no fault of theirs as the article citing their dispute with the ONGC highlights. That doesn't take away from the fact that as of now their financial condition inhibits them or rather their prospective clients from considering them as contenders for future projects.

 

[Arvind]

Past precedents of big failures, firm economy in doldrums and still IN looking for more to forbid RNAVAL from bidding?

If I am not wrong, credibility is a subjective but an essential part of tender process. IN has the right to reject based on credibility assessment.

 

[randomradio]

While RNaval is definitely a pioneer & the most active of our pvt shipyards, it can't be denied that they're up shit creek without a paddle, sometimes for no fault of theirs as the article citing their dispute with the ONGC highlights. That doesn't take away from the fact that as of now their financial condition inhibits them or rather their prospective clients from considering them as contenders for future projects.

Rather I think what they need is a financial infusion, which Anil himself can do if he gets an order.

We aren't even talking about a large sum, where the Ambanis are involved, to keep the company afloat. RNEL currently has our most advanced shipyard.

 

[_Anonymous_]

Rather I think what they need is a financial infusion, which Anil himself can do if he gets an order.

We aren't even talking about a large sum, where the Ambanis are involved, to keep the company afloat. RNEL currently has our most advanced shipyard.

Please take a look at the group's financial condition not just of RNaval and tell me in the current economic scenario which financial institution would lend to ADAG? Anil Ambani has been forced to sell off BSES ( a part of Reliance Power? ) recently - a crown jewel to Adani, the only rare profit making company in his group.

Nor is any pvt sector co in a position to take over RNaval. Which leaves one with only one distinct possibility - Nationalisation of the said ship yard considering you have opined it to be our most advanced and consequently prestigious shipyard.

 

[randomradio]

Please take a look at the group's financial condition not just of RNaval and tell me in the current economic scenario which financial institution would lend to ADAG? Anil Ambani has been forced to sell off BSES ( a part of Reliance Power? ) recently - a crown jewel to Adani, the only rare profit making company in his group.

Nor is any pvt sector co in a position to take over RNaval. Which leaves one with only one distinct possibility - Nationalisation of the said ship yard considering you have opined it to be our most advanced and consequently prestigious shipyard.

If RNEL gets something like the LHD contract, then Anil will be able to pump equity into the shipyard. The profits alone will happily clear most of the debt.

The point is they have infrastructure and the expertise, hence making it a strategic shipyard. Hell, I don't mind if Mazagon Dock buys a stake in Pipavav, to make the LHDs. Regardless of ownership, the shipyard should survive.

 

[_Anonymous_]

If RNEL gets something like the LHD contract, then Anil will be able to pump equity into the shipyard. The profits alone will happily clear most of the debt.

The point is they have infrastructure and the expertise, hence making it a strategic shipyard. Hell, I don't mind if Mazagon Dock buys a stake in Pipavav, to make the LHDs. Regardless of ownership, the shipyard should survive.

With the recent revelations about Dassault's need to select Reliance being made public & the SC asking the GoI for a look into the evaluation process you can be sure to expect a huge scandal in the making jeopardizing further procurements of the Rafale and rendering any further deals with Reliance poisonous.

I would hazard a guess that the LHD tender will be scrapped & all future requirements concerning RNaval to be framed in such a manner as to putting them at a serious disadvantage if not outrightly disqualifying them.

The Modi govt is on its way to face its first massive public scandal in 5 years.

 

[Milspec]

If RNEL gets something like the LHD contract, then Anil will be able to pump equity into the shipyard. The profits alone will happily clear most of the debt.

The point is they have infrastructure and the expertise, hence making it a strategic shipyard. Hell, I don't mind if Mazagon Dock buys a stake in Pipavav, to make the LHDs. Regardless of ownership, the shipyard should survive.

I am not sure if you understand what equity is.

 

[Milspec]

With the recent revelations about Dassault's need to select Reliance being made public & the SC asking the GoI for a look into the evaluation process you can be sure to expect a huge scandal in the making jeopardizing further procurements of the Rafale and rendering any further deals with Reliance poisonous.

I would hazard a guess that the LHD tender will be scrapped & all future requirements concerning RNaval to be framed in such a manner as to putting them at a serious disadvantage if not outrightly disqualifying them.

The Modi govt is on its way to face its first massive public scandal in 5 years.

If not nipped in the bud, ADAG and its shady practices will take this government down for sure.

 

[_Anonymous_]

I am not sure if you understand what equity is.

Please don't deploy cynicism to ruin someone's optimism.

 

[randomradio]

I am not sure if you understand what equity is.

I was talking about Anil buying more stake. He owns only 36% of Pipavav.

 

[_Anonymous_]

I was talking about Anil buying more stake. He owns only 36% of Pipavav.

Now you're clutching at straws.

 

[randomradio]

Now you're clutching at straws.

Nah. If Anil gets an order to build more ships, it's logical to expect the shipyard has a future. Anybody will invest in it then.

RNEL also has a deal with Mazagon Dock to build submarine parts if MDL gets picked as a Strategic Partner for P-75I.

The LHD and sub deal are worth more than 50K Cr together. And there are 12 other RFPs to be released by the navy, which RNEL, and even L&T, is pinning their hopes on.

Here's L&T complaining about it.
Level playing field missing in India, says L&T Shipbuilding MD & CEO

The problem is both RNEL and L&T have made massive investments in order to develop shipbuilding capability, but politics is forcing the navy to give orders to the DPSUs. Now both private shipyards are sitting with state-of-the-art infrastructure, but no orders because the govt is happily nominating the DPSUs only.

If orders don't come, then it's obvious these companies are going to see defaults.

Even L&T Shipbuilding is a loss making company.
L&T Shipbuilding, currently in Rs 2,500-cr loss, to break even in two years

And L&T is also pinning their hopes on new RFPs to stay afloat.

So it's not a good idea to kick out RNEL out of the LHD project when all they need is orders to break even. In case the LHD tender is withdrawn, then DPSUs will get involved and even L&T will join RNEL, and the navy will have to wait 5+ years for a new LHD tender.

We cannot afford to lose these two companies as shipbuilders. The DPSUs are incapable of meeting our future requirements.

 

[_Anonymous_]

Nah. If Anil gets an order to build more ships, it's logical to expect the shipyard has a future. Anybody will invest in it then.

RNEL also has a deal with Mazagon Dock to build submarine parts if MDL gets picked as a Strategic Partner for P-75I.

The LHD and sub deal are worth more than 50K Cr together. And there are 12 other RFPs to be released by the navy, which RNEL, and even L&T, is pinning their hopes on.

Here's L&T complaining about it.
Level playing field missing in India, says L&T Shipbuilding MD & CEO

The problem is both RNEL and L&T have made massive investments in order to develop shipbuilding capability, but politics is forcing the navy to give orders to the DPSUs. Now both private shipyards are sitting with state-of-the-art infrastructure, but no orders because the govt is happily nominating the DPSUs only.

If orders don't come, then it's obvious these companies are going to see defaults.

Even L&T Shipbuilding is a loss making company.
L&T Shipbuilding, currently in Rs 2,500-cr loss, to break even in two years

And L&T is also pinning their hopes on new RFPs to stay afloat.

So it's not a good idea to kick out RNEL out of the LHD project when all they need is orders to break even. In case the LHD tender is withdrawn, then DPSUs will get involved and even L&T will join RNEL, and the navy will have to wait 5+ years for a new LHD tender.

We cannot afford to lose these two companies as shipbuilders. The DPSUs are incapable of meeting our future requirements.

I don't quite think you've understood the way politics is practised in our nation. While your above post is well taken, this isn't exclusively about the financial health of RNaval or ADAG ( although that in itself plays a very big part) or even it's technical expertise or the strategic aspects of capacity building in the pvt sector but about the broader ramifications of the optics concerning the nexus between crony capitalists and their corrupt political patrons.

 

[Milspec]

Equity means Value of the shares issues by a company, as you said "pumping equity in the shipyard", means either issuing additional shares through rights or additional IPO, If profits will be enough to clear the debt, why would one need to "pump equity" to service debt. These two are antithetical statements, thus I doubted the your usage of equity.

Now coming to your post.

Nah. If Anil gets an order to build more ships, it's logical to expect the shipyard has a future. Anybody will invest in it then.

Lets use this exact same logic. What stops Anil from delivering the OPV's that are on order use the profit and pay off the debt? This supposedly state of the art facility should not have any issues in delivering OPV's, but that state is clear in the opening post. So where do you espouse this confidence from?

Next lets say RNEL does the same magic with LHD's with the Modi govt as the current deals and gets to be Private shipyard for the LHD's, where is going to get the money for raw material, engg expense and interest coverage in addition to the interest it is already defaulting on? If anything he will most likely pledge his holding to raise more cash to just service the debt. And there is pretty good chance that in the period of manufacturing and fitting the LHD if it does default, Government will be stuck with the bill and incomplete ship. Companies with poor financials thus pose a high risk for such projects.

RNEL also has a deal with Mazagon Dock to build submarine parts if MDL gets picked as a Strategic Partner for P-75I.

That is quite unfortunate to learn. MDL should take some feedback from the Indian Navy and disqualify RNEL as it's strategic partner as its security and reliability Audit.

The LHD and sub deal are worth more than 50K Cr together. And there are 12 other RFPs to be released by the navy, which RNEL, and even L&T, is pinning their hopes on.

Here's L&T complaining about it.
Level playing field missing in India, says L&T Shipbuilding MD & CEO

Here I do agree, that DPSU's are favored by Indian government. The objective is to fill the DPSU's to brink and let private industry deal with items that it cannot. At the end of day if the bottomline from defence deal comes back to the tax payers than going to the private players it will always be a government preference.

The problem is both RNEL and L&T have made massive investments in order to develop shipbuilding capability, but politics is forcing the navy to give orders to the DPSUs. Now both private shipyards are sitting with state-of-the-art infrastructure, but no orders because the govt is happily nominating the DPSUs only.

I see what you did there, but let me remind you that L&T as a group of companies is led by capable leadership and is segment leader in every market it operates in, while ADAG is the exact opposite. So even mentioning both of them in the same sentence is laughable. In the next line i will explain the criticism.

If orders don't come, then it's obvious these companies are going to see defaults.

Even L&T Shipbuilding is a loss making company.
L&T Shipbuilding, currently in Rs 2,500-cr loss, to break even in two years

No they wont, atleast not L&T and the info is in your own link
"He said that the company has so far invested around Rs 5,000 crore in the Kattupallifacility and the accumulated losses would be around Rs 2,500 crore, which the company expects to come down with the utilisation going up"
"Around Rs 1.4 lakh crore worth of contracts are being executed and Rs 1.10 lakh crore worth of projects are under acceptance of necessity, which would move for tender process later, he added."

Investment is 5000 cr + 2500 loss >
Current book order is 110000 cr
and the company is going to break even in 2 years, i.e. its going to make roughly 7500cr bottom line in two years, or 3500cr PAT per annum.

Lets say its current book order of 110000 cr takes four years to deliver, still 27500 cr top line with a 3500 bottom line.

now compare that to RNEL, with a 335cr top line , and -956cr bottom line, its not even in the same league as L&T Shipyards.

And L&T is also pinning their hopes on new RFPs to stay afloat.

With Around Rs 1.4 lakh crore worth of contracts are being executed and Rs 1.10 lakh crore worth of projects are under acceptance of necessity, i'd say they are doing pretty well.

So it's not a good idea to kick out RNEL out of the LHD project when all they need is orders to break even. In case the LHD tender is withdrawn, then DPSUs will get involved and even L&T will join RNEL, and the navy will have to wait 5+ years for a new LHD tender.

How is it that difficult, deliver the OPV's first and then qualify as a shipbuilder.

We cannot afford to lose these two companies as shipbuilders. The DPSUs are incapable of meeting our future requirements.

There is no ongoing concern for L&T. Your ploy of clubbing a turd like RNEL with L&T although amusing is quite clear to see through. No one here is worried about L&T, RNEL is on the brink of NCLT, I am saying ek Dhakka aur do.

Coincidentally march 5th is when ADAG got hold of pipapav. Since Anil bhai's leadership came in, the company fell flat on it's face.

 

[randomradio]

I don't quite think you've understood the way politics is practised in our nation. While your above post is well taken, this isn't exclusively about the financial health of RNaval or ADAG ( although that in itself plays a very big part) or even it's technical expertise or the strategic aspects of capacity building in the pvt sector but about the broader ramifications of the optics concerning the nexus between crony capitalists and their corrupt political patrons.

Crony capitalism and corruption has not touched these shipyards though.

RNEL and L&T Shipbuilding have massive debts and are loss making because they have spent a lot of money building world class infrastructure and the govt isn't giving them any orders to allow them to break even.

This is not an apartment building company, these two shipyards are of core national importance and must be supported on a priority basis. These are the only two companies in India that can match Chinese build rates.

RNEL is already a massive shipyard that none of the DPSUs can match, not even CSL, whereas L&T will be the biggest in Asia. So you can imagine the kind of money that has gone into these two shipyards. RNEL in fact wanted to use the Talwar frigate deal to build a facility that could build 20 such ships in Andhra Pradesh. L&T's SSBN deliveries were all ahead of time.

And it's not like they are asking for special consideration, they are asking for a level playing field, where DPSUs are not simply nominated for the heck of it, and that technical capabilities of the shipyards should be considered.

The LHD contract has been split between GSL and RNEL/L&T. Both parties will build 2 ships each. There's no way GSL will keep up with the private company. By the time private companies will have delivered the ship, GSL will be still be building the modules.

The best bet is to remove DPSUs from some projects and hand them only to the private companies.

I'll tell you a secret. Do you know how DPSUs work?

They take large contracts through nomination basis and then they stick all the money into banks, which accrue interest. And then they build very, very slowly, taking years, using a smaller than necessary labour force, while the money continues generating interest. Trade unions ensure that the govt cannot pester them. Do you know the interest accrued is generally more than their profits?

And then half a decade later, they construct the ship and release it. And due to the delays, they jack up prices anyway, which the govt willingly pays, and this is generally 2x the bid price at the minimum. Our carrier price has shot up by 6 times. Crony capitalism eh? You don't know the half of it.

Plus, unlike private shipyards, DPSU infrastructure is built up with taxpayer money. So they never have any long term debt, and their bid prices are covered by their apathy, since the govt has no choice in the matter.

Dude, no matter what, these DPSUs have to disappear.

At least the private shipyards should get all the ships that are corvettes and lower. And they should raise the penalties for time overruns by a massive margin, enough to eat away all profits and put them under a loss.

The only reason L&T and RNEL are surviving today is because they have deep pockets.

 

[randomradio]

Equity means Value of the shares issues by a company, as you said "pumping equity in the shipyard", means either issuing additional shares through rights or additional IPO, If profits will be enough to clear the debt, why would one need to "pump equity" to service debt. These two are antithetical statements, thus I doubted the your usage of equity.

Yeah, I used it wrong.

Lets use this exact same logic. What stops Anil from delivering the OPV's that are on order use the profit and pay off the debt? This supposedly state of the art facility should not have any issues in delivering OPV's, but that state is clear in the opening post. So where do you espouse this confidence from?

Next lets say RNEL does the same magic with LHD's with the Modi govt as the current deals and gets to be Private shipyard for the LHD's, where is going to get the money for raw material, engg expense and interest coverage in addition to the interest it is already defaulting on? If anything he will most likely pledge his holding to raise more cash to just service the debt. And there is pretty good chance that in the period of manufacturing and fitting the LHD if it does default, Government will be stuck with the bill and incomplete ship. Companies with poor financials thus pose a high risk for such projects.


That is quite unfortunate to learn. MDL should take some feedback from the Indian Navy and disqualify RNEL as it's strategic partner as its security and reliability Audit.



Here I do agree, that DPSU's are favored by Indian government. The objective is to fill the DPSU's to brink and let private industry deal with items that it cannot. At the end of day if the bottomline from defence deal comes back to the tax payers than going to the private players it will always be a government preference.

I see what you did there, but let me remind you that L&T as a group of companies is led by capable leadership and is segment leader in every market it operates in, while ADAG is the exact opposite. So even mentioning both of them in the same sentence is laughable. In the next line i will explain the criticism.



No they wont, atleast not L&T and the info is in your own link
"He said that the company has so far invested around Rs 5,000 crore in the Kattupallifacility and the accumulated losses would be around Rs 2,500 crore, which the company expects to come down with the utilisation going up"
"Around Rs 1.4 lakh crore worth of contracts are being executed and Rs 1.10 lakh crore worth of projects are under acceptance of necessity, which would move for tender process later, he added."

Investment is 5000 cr + 2500 loss >
Current book order is 110000 cr
and the company is going to break even in 2 years, i.e. its going to make roughly 7500cr bottom line in two years, or 3500cr PAT per annum.

Lets say its current book order of 110000 cr takes four years to deliver, still 27500 cr top line with a 3500 bottom line.

now compare that to RNEL, with a 335cr top line , and -956cr bottom line, its not even in the same league as L&T Shipyards.



With Around Rs 1.4 lakh crore worth of contracts are being executed and Rs 1.10 lakh crore worth of projects are under acceptance of necessity, i'd say they are doing pretty well.


How is it that difficult, deliver the OPV's first and then qualify as a shipbuilder.





There is no ongoing concern for L&T. Your ploy of clubbing a turd like RNEL with L&T although amusing is quite clear to see through. No one here is worried about L&T, RNEL is on the brink of NCLT, I am saying ek Dhakka aur do.

RNEL and L&T are facing the same problems. L&T has a bigger order because they are an older company. But both RNEL and L&T have very similar expertise. And their managements are also equally good. You many not like Anil, but the RNEL management is composed of accomplished people.

https://www.rnaval.co.in/board-of-directors

As for the OPV, the actual construction delay is very limited. The two ships made by RNEL were the first warships made by a private shipyard, which is a pretty big deal. The new designs were unveiled in 2014, and are expected to be delivered early next year. So they have kept to their new schedule, more or less. Compared to that, not one DPSU has ever delivered a warship on time, or without cost overruns. Whereas the RNEL's OPVs do not have cost overruns, and they are paying a penalty for the late delivery.

You should read my previous post.

 

[randomradio]

@Hellfire

Any inputs on our private sector shipbuilding?