The Telegraph
Wednesday , January 2 , 2013
Since 1st March, 1999
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IOC eyes Haldia Petro control

Calcutta, Jan. 1: Indian Oil Corporation has renewed its interest in acquiring a controlling stake in Haldia Petrochemicals with the tacit support of the lead bankers of the company amid an acute financial crisis that has crippled the showpiece project of Bengal.

The State Bank of India and IDBI Bank have called a meeting on January 7 in Mumbai with the two leading promoters of HPL — the West Bengal Industrial Development Corporation (WBIDC) and The Chatterjee Group (TCG) — to discuss IOC’s proposal, among others.

Sources said Indian Oil, the country’s largest oil refiner, had given a blueprint to the lenders on the synergies possible with HPL.

The development comes at a time the Bengal government has decided to sell its stake in HPL through an auction. Today it appointed Deloitte as the transaction adviser for the entire bid process.

However, IOC is understood to be keen on a negotiated deal with the promoters of Haldia Petro against competing with other players in auction.

Indian Oil already has an 8.89 per cent stake in HPL by virtue of a Rs 150-crore investment made in 2004.

However, the inclusion of the oil retailer had triggered a fierce seven-year legal battle between the WBIDC and TCG that even reached the Supreme Court.

In its plea before the apex court, TCG had said its control over HPL was under threat because of the inclusion of Indian Oil as a stakeholder. However, the Supreme Court, in its September 2011 order, declined to hand over HPL’s management control to TCG.

In 2004, the then Left Front government had invited Indian Oil to invest in HPL with the intention of bringing in a player in the petrochemical business that had deep pockets and eventually handing over management control to it. But the plan could not materialise because of opposition from Purnendu Chatterjee’s TCG.

After the Supreme Court judgment, IOC had renewed its interest in HPL, but the talk did not make any headway.

The recent overture followed a meeting between HPL managing director Sumantra Choudhury and IOC officials in October. While Choudhury sought more naphtha, the basic raw material for HPL, the maharatna firm proposed a comprehensive plan of investing in HPL.

This was followed by hectic parleys between bankers and IOC as the lenders were inundated with requests from the Bengal government to urgently release funds to save the firm from slipping into bankruptcy.

However, the lenders have so far declined to release funds unless the HPL promoters bring in fresh equity.

Precarious finance

Inadequate working capital, despite best efforts of the present management, has forced the company to operate at 50 per cent of the installed capacity, resulting in huge losses.

According to an estimate, Haldia Petro has piled up nearly Rs 1,000 crore of accumulated losses.

It is now a fit case to be reported to the Board for Industrial and Financial Reconstruction (BIFR) as the net worth of the company now stands at around Rs 1,000 crore.

HPL’s net worth has to be over Rs 1,200 crore to save it from going to the BIFR.

Lenders are worried that their loans will turn sticky if HPL continues to bleed without the support of a strong player such as Indian Oil.

The Bengal firm is suffering Rs 50-60 crore of cash loss every month and desperately needs non-interest bearing funds to the tune of Rs 1,000 crore. HPL has defaulted on working capital loan.

Bankers have exposure to the tune of Rs 3,800 crore in HPL compared with around Rs 1,630 crore equity and preference shares of WBIDC and TCG. Lenders also have a 7.58 per cent equity stake in the firm. The Tata group has a 2.67 per cent stake as well.

Industry observers are, however, divided over the fate of Indian Oil’s latest overture even though lenders favour such a deal.

While IOC prefers a negotiated deal, the Bengal government has officially decided to conduct an open auction.

However, Indian Oil’s public sector tag would mean any deal with HPL will be least controversial politically. Moreover, a negotiated deal could work out faster than an auction.

It would now boil down to how the Mamata Banerjee- government deals with the matter.

The stand taken by private promoter TCG will also be crucial. It has so far been opposed to either an auction or a negotiated deal even though the stalemate has cost the company dear.