Why JSPL Has Shown Interest In Insolvent Reliance Naval
A laborer rests during his break as a ship unloads cargo at Kolkata Port in Kolkata, India. (Photographer: Prashanth Vishwanathan/Bloomberg)  

Why JSPL Has Shown Interest In Insolvent Reliance Naval

Jindal Steel & Power Ltd. has shown interest in bankrupt Reliance Naval and Engineering Ltd. The Navin Jindal-controlled group sees the shipbuilder as a possible client for its steel products.

JSPL is India’s largest manufacturer of hot-rolled steel plates that are used to fabricate warships and merchant ships. The steelmaker also produces structural angles, channel and beams that can be used in shipbuilding.

The company is looking to use Reliance Naval for three purposes: shipbuilding, ship repair and manufacturing specialty structures, VR Sharma, managing director at JSPL, said in an interview with BloombergQuint.

The objective is to replicate the success of Korean shipyard industry, according to Sharma. Globally, Korean and Chinese shipyards bag orders for LNG-ship construction. Last year, Qatar Petroleum signed a $20-billion order with Korean shipbuilders to cement its hold as the largest LNG producer in the world.

JSPL also plans to make vessels, ships and containers for sale in states including Gujarat, Maharashtra, Rajasthan, Chhattisgarh, and Madhya Pradesh, among others, according to the managing director.

Sharma estimates operating income of more than Rs 3,000 crore from shipbuilding and fabrication a year. Reliance Naval would take three to four months for revival after acquisition, he said.

Explaining why JSPL is looking to acquire the debt-ridden company, he said:

  • Location off the Arabian Sea provides an opportunity to service the Middle East, Europe and Latin American.

  • Gujarat, where Reliance Naval is based, is an industry-friendly state.

  • And India’s self-reliance push will generate orders to make defence equipment and aircraft.

  • He sees shipyard business growing at 10-15% given the momentum post-Covid.

What Is JSPL Willing To Pay?

While Sharma didn’t disclose any amount, he said steel and steel fabrication units have been sold at 17-18% of their debt in the last one year. Reliance Naval, he said, has a debt of Rs 10,800 crore.

Debt

JSPL has a net debt of Rs 25,000 crore. Sharma, however, said the company would fund the acquisition from internal accruals and won’t take on more debt.

JSPL is expected to generate operating income of Rs 12,000 crore for the financial year ending March 2021, Sharma said. And it’s expected to rise to Rs 15,000 given that the commodity cycle is likely to remaining bullish for at least two more years, he said.

Watch the full interview here:

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