HPL pie may cost IOC a premium

Indian Oil Corporation (IOC) may have to fork out a premium to pick up a stake in Haldia Petrochemicals Ltd (HPL).

The promoters, government of West Bengal, The Chatterjee Group (TCG) and Tata Sons, are looking at an investment of Rs 150 in the company. IOC has emerged as the front runner for the stake leaving behind the other contender, GAIL India.

Even though the premium amount is to be negotiated among partners, sources said it would be linked to the premium which HPL's initial public offer (IPO) would attract. IOC has asked KPMG to carry out a fresh due diligence to evaluate its investment proposal. If IOC agrees to pay a premium, it would be a complete reversal of the situation witnessed about two-and-a-half years ago.

HPL ran into a huge loss after commercial production commenced in August, 2001, following which sale of HPL shares at a discount was discussed.

Talks with IOC had broke down in 2002 as TCG did not agree to part with management control. GAIL had emerged as a strategic investor which did not press for management to begin with.

HPL promoters are looking for a premium as the company will float IPO by third quarter of this fiscal. The issue will be a book-built one and come with a small Rs 10-20 premium on a share of face value Rs 10.

If the private placement to any strategic investor (in this case IOC or GAIL) is made at face value and the IPO is done at a premium, the investment by the strategic investor would instantly be re-rated at the market price which is going to be much higher than face value.

This might not be acceptable to the existing promoters of HPL, especially TCG. Even the Tata group, which is planning to pare its exposure to the company to a great extent, is looking at recovering holding cost of its investment in HPL.

Market sources pointed out an IPO with premium is not unjustified as HPL has made a remarkable turnaround in last fiscal. After two years of consecutive loss amounting to over Rs 1,000 crore, HPL posted a net profit of about Rs 100 crore.

This year, it expects to surpass last year's profit figure in six months, thanks to strong polymer prices and debt restructuring.