The Telegraph
Monday , July 1 , 2013
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HPL bidder scrutiny from today

Calcutta, June 30: The divestment of Haldia Petrochemicals Ltd is set to enter the next phase with the company giving online data access to prospective bidders to carry out due diligence from tomorrow.

The bidders will have simultaneous access to data that have been uploaded on the Net. They will also be allowed to visit the plant in turn and make an assessment before placing a price bid.

Government officials said they were confident of wrapping up the divestment by September.

“Unless there are external interferences (legal complications), the money should be in government coffers,” officials added.

Reliance Industries Ltd, oil explorer Cairn India Ltd and public sector energy firms Indian Oil, ONGC and GAIL (India) Ltd are in the fray to pick up the state government’s 39.99 per cent stake in HPL.

The successful bidder will also get Rs 281 crore worth of preference shares of HPL with Bengal government-run financial institutions, apart from the equity, only if HPL’s private promoter The Chatterjee Group (TCG) declines to match the highest quote.

TCG is contesting the stake sale, and Calcutta High Court is expected to take up a number of cases on July 11. The outcome of these legal battles will decide the course of the divestment.

Consultancy firm Deloitte Touche Tohmatsu is the transaction adviser to the West Bengal Industrial Development Corporation (WBIDC), which holds the shares in HPL on behalf of the state government.

Deloitte is also likely to carry out a valuation of HPL’s shares to fix a reserve price. However, the price will be disclosed to the bidders only after they submit the price bids. Quotes made below the reserve price will be rejected.

The government is likely to carry out a sealed bid process in which prospective companies will submit their price quotes, unlike the complex but successful process in the auction of third-generation (3G) airwaves in 2010.

In the 3G auction, the central government had garnered Rs 67,719 crore, much above its expectations, mainly because of the manner in which the auction was structured.

In 3G, the participants were locked in multiple rounds of bidding, pushing up the prices. Sealed bids allow only one round of bidding, and participants do not get a second chance to better their respective first and only bids.

“Sealed bid may not unlock the best value for the underlying asset though it may serve the purpose of finding the highest bid from a set of quotes,” said an industry observer.

Tough task

It has been a tightrope walk for the HPL management to maintain solvency amidst a financial crunch.

The company made a positive contribution to its bottomline in June because of an improved market for polymers, but it is still operating at 70 per cent capacity.

Banks have agreed to give a Rs 400-crore fresh loan to HPL on the back of commitment from the WBIDC, which will also lend Rs 100 crore to HPL. However, the lenders have so far disbursed only Rs 50 crore.

The company is expecting funds to flow in small parcels which may not ease the liquidity condition immediately.

For instance, the money received from lenders were fully used to pay up the interest and principal of the term loan taken by HPL earlier to save the firm from becoming a non-performing asset.

Even then, the company became non-performing in the accounts of at least two banks for want of Rs 22 crore.

HPL expects more funds to be released by banks in the next fortnight so that the money can be utilised for buying naphtha, the primary raw material, and ramp up production.

The company now buys naphtha from public sector MSTC. Each consignment of 50,000 tonnes now costs Rs 280 crore, up from Rs 250 crore, because of the rupee’s devaluation.

Haldia Petrochemicals plans to undertake a series of price hikes across various categories of polymer products from tomorrow to offset the higher cost impact.