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Delay hint in HPL stake sale

Calcutta, Aug. 23: The Bengal government may miss the September-end target to complete the share sale process of Haldia Petrochemicals Ltd as a price bid is unlikely to be called next week.

The state government has to discover the highest price from prospective bidders by August 31 to meet its self-proclaimed target of selling its HPL stake by September 30.

A one-month leeway is required since the state has to give HPL’s existing private promoter The Chatterjee Group (TCG) 30 days to buy out the government’s stake before it can be offered to a third party.

However, meeting the August deadline seems difficult as the process of finalising a please-all model share purchase agreement (SPA) is taking time.

State agency West Bengal Industrial Development Corporation and its transaction adviser Deloitte will hold another round of meeting with the five bidders early next week to thrash out the share purchase agreement.

The final draft of the agreement will be circulated among the five bidders before a price bid is called.

Three public sector energy giants — Indian Oil Corporation, GAIL (India) Ltd and ONGC — are in the race along with private firms Reliance Industries and Cairn India for the Bengal government’s 48.8 per cent stake in HPL.

The pre-bid meeting next week will consider at least five proposals from the bidders to be incorporated in the final SPA. Sources in the state government said it was likely to accept many of them.

Firstly, the bidders want the government to take on HPL’s liability till the day the agreement is signed. As of now, the liability is capped till March 31, 2013. “We can’t be asked to take on liability for a period when we are not even shareholders,” an official of a bidding firm said. Government sources admitted this might be agreed upon.

Second, the bidders want to make a staggered payment, over a period of 1-2 months. As of now, the successful bidder is required to pay for the entire stake on the day the agreement is signed. The state may take a lenient view on this, too.

Further, the state has demanded Rs 100 crore as earnest money deposit from the suitors before they place the price bid. The amount can be forfeited in the case of disputes. Bidders want this to be reduced.

Some bidders have pointed out that the agreement does not mention that TCG has the right of first refusal.

Government sources said this right had been clearly spelt out in the preliminary information memorandum. “It is not part of the SPA because the agreement can only be signed when TCG does not exercise its right,” said a source.

TCG will be been given a month to match the highest price discovered in the price bid. The government will sell shares to TCG if it agrees to match the highest bid or else opt for the highest bidder.

Some bidders have also demanded that the state government should indemnify the new stakeholder from future litigation that has its root in the period when it was not a shareholder.

“You know there is a history of litigation in HPL. If we are indemnified, we will quote the price accordingly. Else, we have to factor in the cost of the litigation and bid low,” said a bidder. There is little possibility that the state government will agree to this. It believes all legal issues are in the public domain and bidders have to use their own judgement and bid accordingly.

 
 
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