The Telegraph
Monday , October 7 , 2013
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Twin baits for high Haldia bids

Calcutta, Oct. 6: Vast unencumbered land for future expansion along with the possibility of management control are likely to drive prices up when the country’s top energy firms put in bids for the Bengal government’s share in Haldia Petrochemicals on Monday.

Industry experts predict aggressive bidding among Reliance Industries, Indian Oil Corporation, the GAIL-Oil India combine and Vedanta Resources-backed Cairn India for the Haldia-based petrochemical firm even as its net worth has been nearly wiped out following years of heavy losses.

“The value of HPL is not what the company is today but what it can potentially be if a cash-rich company backed by solid management checks in,” said an executive who had headed a large petrochemical business in the recent past.

The West Bengal Industrial Development Corporation (WBIDC) has put 67.5 crore shares, representing a 39.9 per cent stake in HPL, on the block along with Rs 273 crore of preference equity. It may earn more than Rs 2,500 crore from the sale.

The Bengal government in association with transaction adviser Deloitte has done a valuation of the firm, but the number will be disclosed only on Monday.

After the companies submit their price quotes in a sealed tender, the group of ministers which has been taking decisions on HPL will decide on the reserve price and inform the bidders.

The sealed tenders will then be opened to discover the highest bid price.

The existing private promoter of HPL, The Chatterjee Group, will be given a month’s time to match the bid, failing which the shares will be sold to the highest bidder.

Industry observers expect the reserve price to be Rs 25-35 a share, even as the winning bid could be much higher based on the three distinct advantages HPL has.

Land: The company has around 1,190 acres next to the Haldia port, though only 300 acres have been used for the plant. There is a 590-acre vacant land within the complex, apart from 250 acres of green belt, where major expansion in value-added products in petrochemical downstream can be undertaken. The value of the land can be around Rs 2,000 crore.

Management control: The new shareholder will enjoy the backing of financial institutions, which hold a 7.58 per cent stake in the firm, if it comes up with a firm plan for a turnaround. It will also get the support of the Tata group which has so far stood behind the WBIDC. All put together, the block could be owning nearly 50 per cent of HPL’s voting rights and control of management. Bidders are likely to factor in a control premium for the shares.

Strategic importance: HPL will be strategically important to all the bidders for different reasons.

For Reliance, bagging Haldia will effectively mean killing competition in the polymer market, where it holds a monopolistic control.

For IOC, GAIL and Oil India, the HPL stake will help them to consolidate their wobbly presence in the sector.

For Cairn and Vedanta, which is likely to bid together tomorrow, HPL will help them to make further inroads into the energy business.

“All this company needs is fresh investment. It is operating at 60 per cent capacity because of the paucity of funds and making losses despite having good plant and solid technology,” said an observer.

The HPL management had been considering making new investment plans in various downstream projects but they are still on the drawing board because of depleting cash reserves.

Strong impact

For the Mamata Banerjee government, more than the share sale kitty, the promise of new projects will bring in more cheer.

“I can tell you HPL will be a game changer for Bengal. Forget about what we will get from the sale. Look at the new possibilities. There may be a few billion dollar of fresh investment, spawning downstream industries across the state creating thousands of jobs. We are eagerly looking at this aspect,” a senior Bengal bureaucrat said.

However, much will depend on how The Chatterjee Group will take on the development. For the time being, it is keenly awaiting the Supreme Court’s verdict on its application to move international arbitration, staking claim on a block of 15.5 crore shares that is up for sale tomorrow.

If the verdict goes in TCG’s favour, the entire stake sale process may get delayed, putting HPL’s future in jeopardy as the company may go under the Board for Industrial and Financial Reconstruction when the audited result for this fiscal is declared in 2014.