The Telegraph
Tuesday , March 11 , 2014
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HPL rejig recipe to stay afloat

Calcutta, March 10: Haldia Petrochemicals has hatched a plan to haul itself out of the pretty pickle it finds itself in with the prospect of being referred to the Board for Financial Reconstruction (BIFR) looming large.

The company plans to rejig the holding structure of its two fully-owned subsidiaries — one of them having large land assets — and obtain fresh loans from bankers and the Bengal government to keep itself out of the BIFR and avoid becoming a bad asset.

The short-term measures are likely to save the day for the company for this financial year even as a long-term sustainable solution involving infusion of large equity continues to elude Bengal’s showcase industrial project.

Haldia Petro (HPL) faced the scary prospect of being referred to the BIFR after its net worth — a combination of equity capital and free reserves — was fully eroded by its staggering debts. Unless funding is tied up, Haldia Petro’s negative net worth would be around Rs 500 crore by March 31.

The petrochem company also needs around Rs 200 crore to repay principal and service the loans taken from lenders to avoid being dubbed as non-performing assets (NPA) in their books.

However, there were indications that HPL’s fortunes might look up once the two founding principal promoters agreed to resolve their decade-old differences.

“All that I can tell you is that Haldia’s problems will soon be over,” a smiling Purnendu Chatterjee, chairman of The Chatterjee Group (HPL’s private promoter), said after the company’s board meeting today.

C.M. Bachhwat, additional chief secretary in charge of industry, and the senior most representative from the state government on the board of HPL, chaired the meeting today but declined to give details, citing the election code of conduct.

But sources said they expected some deft financial engineering involving the revaluation and transfer of land assets and a fresh issue of shares.

Under the terms of the proposed deal, HPL will transfer 1.75 crore shares it currently holds in Haldia Riverside Estate Ltd (HREL) to group subsidiary Haldia Cracker Complex (HCC) Ltd.

HCC will, in turn, issue fresh shares equivalent to the value of Haldia Riverside’s re-valued assets to the parent, enabling it to shore up its net worth and escape a referral to the BIFR.

HREL is in possession of 224.83 acres of prime land where the township for HPL employees is located.

The idea of this restructuring involving zero cash was mooted by Chatterjee during the lenders’ committee meeting in Mumbai last week and was backed by the state government today, another sign of a thaw in the cold bilateral relations between the two promoters.

Incidentally, the method being employed by Haldia has a precedent in another well-known industrial venture in Bengal — Dunlop India.

Pawan Ruia, promoter of the ailing tyre maker, re-valued its real estate and transferred them from one subsidiary firm to another to shore up the net worth of Dunlop.

Back in 2007, the financial engineering had involved only issuance of shares in lieu of cash.

Dunlop’s liquidity problem was not solved but the drill took it out of the BIFR.

Industry observers say Haldia’s real estate restructuring will also not be able to resolve the fundamental crisis the Rs 10,000-crore firm is facing — lack of liquidity.

HPL is suffering losses because it does not have enough money to buy raw material naphtha.

It could make a profit on a sustainable basis if its mounting Rs 4,000-crore debt burden could be replaced with a fresh dose of equity, its working capital is shored up and more value-added projects are brought in.

The Mamata Banerjee government’s decision to bring in a deep pocket investor to overcome the crisis came a cropper because of the legal challenges put up by TCG over HPL’s ownership and management control.

All eyes would now be on TCG, which is going to take charge of the firm soon, to put HPL on a sustainable profitable path.