Wagers on Reliance Naval have high risks: Analysts

Mumbai: Investors betting on Reliance Naval and Engineering (RNEL) on expectations of making a quick buck following the debt resolution plan might be making a risky wager. Analysts said the likelihood of investors even recovering their investments immediately is remote under this plan.

Last week, the Ahmedabad bench of the National Company Law Tribunal approved the resolution plan submitted by Hazel Mercantile, a strategic partner of Swan Energy, through a special purpose vehicle (SPV), Hazel Infra. According to the NCLT order, the resolution plan allows the cancellation of all outstanding equity capital being held by the existing shareholders, but in the new shareholding structure, existing shareholders would get one fresh equity share for every 275 ordinary equity shares held.

"Existing shareholders will be able to recover their money if the share price of the new entity trade above ₹700, which is 275 times the current price," said Sudarshan Bhandari, an independent market analyst. "So ideally, Reliance Naval investors should exit as soon as possible if they don't want to drown away with a sinking ship."

RNEL shares rose 5% on Tuesday, hitting the maximum trading price of the day of ₹2.56. About 2 million buy orders were pending on both the BSE and NSE. As on September 30, 2022, nearly 194,000 small investors held shares of RNEL.

As per the approved resolution plan, the SPV will hold 94.91% of the new entity, while the existing shareholders will hold 5.09% equity. According to Sebi norms, a bankrupt company can stay listed even after implementing the resolution plan if existing shareholders hold at least 5% of equity.

"Investors might have rushed to buy RNEL shares even after the NCLT resolution on the expectation that the RNEL shares can be a Ruchi Soya or Orchid Chemicals which gave multi-bagger returns post revamp," said Ambareesh Baliga, an independent analyst. "However, there can be a significant risk of losing substantial investment by trading this stock."