Calcutta, Dec. 26: Come December 30, Haldia Petrochemicals Ltd (HPL) will sign the much-awaited long-term product supply agreement with Gail (India) Ltd (formerly known as Gas Authority of India Ltd).
Under the deal, Gail will buy products worth Rs 600-700 crore from HPL over the next six years. Haldia Petro will securitise this assured revenue to generate Rs 300 crore in cash.
“This amount (Rs 300 crore) will be used to reduce the company’s indebtedness. We have appointed Lazard Capital to arrange for the funds by securitising Haldia Petrochem’s future revenues,” sources in HPL said.
In all likelihood, HPL’s existing lenders will provide the funds. “For all practical purposes, it is likely to be some book entries for our lenders, the result of which will be reduction of HPL’s debts,” said sources in the company.
Commentators see this as the first step towards clearing HPL’s financial mess. Going forward, Gail is also likely to invest around Rs 200 crore in HPL’s equity.
HPL — Bengal’s showcase project — has been groaning under huge debt burden and had even defaulted to its lenders in paying interest. HPL needs to reduce its indebtedness, and needs fresh investment.
Gail’s management has already taken an in-principle decision to invest in HPL’s equity, but wants the company’s lenders to restructure its debts.
Besides reduction of interest rate, the institutions have been asked to convert a part of their loans — roughly Rs 400 crore — into equity.
Gail wants HPL’s lenders to offer the same terms as indicated by them when Indian Oil Corporation had evinced interest in buying shares of the beleaguered petrochemical major.
“Gail’s management is in hectic parleys with the financial institutions. The chairmen of Gail and IDBI have met at least twice within the last month to discuss HPL. There were several other meetings between senior officials of Gail and the financial institutions,” sources said.
The deal between Gail and HPL will also include a ‘product swap’ arrangement, under which Haldia Petro will sell its products under Gail’s brand in the east, while Gail will sell its products under HPL’s brand in the north.
“The ‘product swap’ arrangement will lead to substantial reduction in freight costs and better customer service for both Gail and HPL,” officials explained.