In a bid to buy time for arranging working capital and to achieve higher utilisation of capacity in a conducive market environment, the cash-strapped Haldia Petrochemicals Ltd (HPL) is planning a product swapping agreement with a foreign company as a temporary financing option.
“We are planning a product swapping agreement. We have floated a tender and one overseas company has approached us. They will provide 50,000 tonnes of naphtha, which we will convert into end product. Hopefully, production will start by September-end,” Sumantra Chowdhury, the newly-appointed managing director of HPL, said.The final decision on this will be taken after the company's board meeting next week.
“This is a temporary financing option. Although the margin is lower, this is risk-free and this will reduce our spending. We will get more time to arrange funds. Also, higher production at this time will help us, as product margins are conducive now,” he added.
The margin has gone, as naphtha prices have come down in the international market but polymer prices have not gone down proportionately.
Also, registering a positive cash profit generation in July with higher capacity utilisation, HPL is hopeful about getting additional funds from the lenders.
“Due to credit crunch, plant operated at 100 to 140 tph (tonne per hour) in June 2012 which increased to 200 tph from July 7 onwards. For the first time in the year, we have a positive cash profit in July registering an ebitda (earnings before interest, taxes, depreciation, and amortisation) of Rs 38 crore in the month. With this, we are hopeful of getting support from bankers,” Chowdhury said.
However, with the recent cash loss of about Rs 684 crore since the beginning of the last fiscal, the earning is not sufficient to meet debt servicing, as well as working capital past borrowings of about Rs 2,000 crore in the near future.
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As a revival plan, HPL has sought an additional Rs 1,000 crore from lenders as working capital for the next two years, which include a Rs 600 crore fund-based loan and Rs 400 crore LC (letter of credit) based. After submission of the proposal by HPL, banks released a total Rs 200 crore LC based loan in July.
“Additional LC from PNB (Punjab National Bank), State Bank of Hyderabad and Karur Vysya Bank is under consideration. With some positive signs and conducive market environment, we are also hopeful of some fund based loan from lenders as well,” Chowdhury said.
HPL has decided to reduce its dependence on imported naphtha, which accounts for 80 per cent of the total requirement. While Haldia refinery of Indian Oil Corp provides 45,000 kilo tonnes of naphtha, Hindustan Petroleum Corp has agreed to provide 15,000 kilo tonnes from its Vizag unit. Talks are on with Bharat Petroleum Corp and Mangalore Refinery and Petrochemicals for sourcing domestic naphtha, he said.
“Our total annual requirement of naphtha was 20 million tonnes.The aim is to bring down the ratio to 60 per cent imports and 40 per cent domestic. This will help bring down costs." he said.