 "Haldia Petrochemicals stares at bleak future")
Haldia Petrochemicals is the third-largest venture in West Bengal after public sector Coal India Ltd and ITC. The once-upon-a-time showcase project stares at being referred to the Board for Industrial and Financial Reconstruction (BIFR), thanks to the serious erosion in its net worth caused by recurring losses. Its net worth has fallen from Rs 2,347 crore at the end of 2009-10 to Rs 2,097 crore in 2010-11, Rs 1,479 crore in 2011-12 and Rs 500 crore as on March 31, 2013. If a company's net worth gets eroded by 50 per cent in the last four years of reference, the board of directors needs to inform BIFR; and once the net worth is fully eroded, the company is declared sick and ends up on the operating table of BIFR. To save itself from the ignominy of informing BIFR, Haldia Petrochemicals ought to have net worth of more than Rs 1,200 crore - at least Rs 700 crore more than what it is now. One news report mentions that apart from the 850 people who work with the company, there are 900 downstream ventures in the state dependent on Haldia Petrochemicals. These units employ 200,000 people. A sword of uncertainty hangs over the future.
Struggling operations
For Haldia Petrochemicals, the scenario is not exactly new. The company was in a similar situation during this time last year, but a debt of Rs 128 crore was turned into equity and that managed to save the day for the company. The conversion led to creditors owning 8 per cent of the company. The all-important question is, what has driven Haldia Petrochemicals to the brink of sickness? The reasons are many. In 2011, the plant had seen two shutdowns, apparently due to improper implementation of its expansion project, Supermax. It was followed by a downtrend in naphtha prices. Some others say that the acute shortage of working capital has made the factory function at way below full capacity. In 2012-13, for instance, it has been able to utilise just 65 per cent of its production capacity. Underlining it all has been, however, the ownership battle that has plagued the company.
The dispute hinges on the ownership of 155 million shares (about 10 per cent of the total paid-up capital) of Haldia Petrochemicals, which is the key to majority control over the company. The tussle over these shares goes back to 2005 when TCG moved the Company Law Board against the Left Front-led West Bengal government. CLB ruled that the entire stake should be sold to TCG, which prompted the state to approach the High Court. The High Court ruled in West Bengal's favour and the Supreme Court upheld the High Court's judgment in October 2011. The judgment established the state government's majority in the company and, armed with it, the industry minister decided to set the ball rolling for an auction of these shares. It had even appointed consultancy firm Deloitte to value the shares.
It didn't go down well with Chatterjee. According to the agreement signed between TCG and the West Bengal government, he has the first right of refusal. TCG decided to drag the government to the International Court of Arbitration, under the International Chamber of Commerce, in 2012. Meanwhile, the state government rejigged the top management in a boardroom coup of sorts. Industry Minister Partha Chatterjee became the chairman of Haldia Petrochemicals. Partha S Bhattacharyya (the former chairman of Coal India who had successfully listed the company) was replaced as the managing director with Sumantra Chowdhury, the state transport secretary. The protracted battle between Chatterjee and the state government has spelt nothing but trouble for Haldia Petrochemicals. The company is expected to report a loss of around Rs 600 crore for 2012-13. On January 14, credit rating agency Icra downgraded the company for its long-term loans.
That probably explains why bankers are not comfortable extending a lifeline to Haldia Petrochemicals. Lenders have rejected the management's request to extend any working capital loan. In January this year, a high-level meeting was held in Mumbai where all the lenders were present. The bankers had set a number of terms for the ailing company, one of the primary being that promoters would have to infuse funds. Chatterjee, however, has made it clear he would bring in funds only if he gets management control. TCG has invested close to Rs 10,000 crore in India, of which Haldia Petrochemicals accounts for Rs 600-800 crore.
While Haldia Petrochemicals Managing Director Sumantra Choudhury declined to comment on the matter, the company's former CFO, D S Chakraborty, says: "Things haven't moved an inch; the company did not get any loan from the bankers. It has to go to BIFR now. The only hope for the company, if at all, is the state government's share-sale drill." Industry Minister and Haldia Petrochemicals Chairman Partha Chatterjee says the government is in the process of coming out with a notice that will invite "expressions of interest" for its shares in the next couple of days. "We will not let Haldia Petrochemicals shut down. By selling our shares in Haldia Petrochemicals, substantial money is expected to come which would help the company," he says.
TCG will be offered these shares first. If it refuses, the highest bidder will bag the shares. Indian Oil Corporation, which already owns around 8.9 per cent in Haldia Petrochemicals, has shown interest in these shares. Reliance Industries and GAIL (India) had also evinced interest. But the legal tussle is a disincentive for some. MRPL, for instance, has retracted from its plan to buy these shares.