Calcutta, Sept. 19: IDBI Bank has issued a notice to Haldia Petrochemicals asking it to convert a part of its loan into equity, citing a breach in the conditions of the corporate debt restructuring (CDR) package signed between lenders and HPL in 2004.
The Mumbai-based bank is the lead lender of a consortium of financial institutions that gave over Rs 1,800 crore to the ailing petrochemicals plant as long-term debt.
IDBI sent the letter to the firm in end-August, demanding conversion of Rs 60.86 crore of loan into equity at face value by September 25.
However, the Mamata Banerjee government, which is in control of the joint sector company, is unwilling to agree to the demands of the financial institution just yet.
“I am aware of the demand (made by IDBI) but we have recently converted some loans into equity,” Partha Chatterjee, chairman of HPL and Bengal industries minister, said.
According to the CDR specification, HPL in March converted Rs 128 crore worth of loan given by FIs into equity. The Chatterjee Group (TCG), which is the lead private promoter in HPL, opposed the move.
The conversion not only reduced interest outgo of the firm, allowing it to use the money for other revenue generating purposes, but also increased the net worth and saved HPL from going to the Board for Industrial and Financial Reconstruction (BIFR).
A company has to “report” to the BIFR if its peak net worth gets eroded by half according to the provisions of corporate law. HPL was staring at that possibility following three years of successive heavy losses.
IDBI’s recent missive is unlikely to be appreciated by TCG, which the financial institution claims has defaulted on some CDR provisions.
According to the restructuring package agreed upon then, HPL was to make an initial public offer to bring in cash.
The package, which reduced interest rates on long-term loans and allowed a moratorium on payment of principal amount, also called for TCG to pledge 60 per cent shareholding of Chatterjee Petrochem Mauritius Company in favour of the institutions.
None of the above happened.
Incidentally, the board of HPL was slated to meet on September 21 and discuss IDBI’s notice. However, the meeting has been postponed and a new date is yet to be decided. The annual general meeting of the company is scheduled for September 26.
Though the other lenders are yet to raise such a demand, they are watching the response of HPL and its promoters to IDBI’s notice.
The missive has come at a time the company is desperately trying to secure more loans to carry on routine operations such as buying raw material naphtha.
Bankers have urged Bengal, which has a stake in the company through the West Bengal Industrial Development Corporation, to either infuse fresh equity or bring in a strategic investor to bail out the firm.
The Mamata Banerjee government has decided to exit the company but is yet to figure out the process. A group of ministers (GoM) has been set up by the chief minister under the chairmanship of finance minister Amit Mitra to look into the method.
The GoM has to strike a balance between extracting best value for the government’s stake in the firm while placating the interest of TCG, which has been demanding majority control for over a decade now.
Industry observers said IDBI’s move was well timed as the firm believed the government would bring in new investor and it would make a quick gain from the shares.