IOC may drop HPL reins demand

Indian Oil Corporation may drop the demand of management control in Haldia Petrochemical Ltd (HPL) for making an entry in the company.

This follows the fact the talks between promoters of HPL and IOC had broken down in 2002 owing to this contentious issue. The PSU major now would be comfortable in taking a token stake in the company to begin with.

However, IOC has decided to put in place a clear legal agreement in place with the promoters of HPL, government of West Bengal, The Chatterjee Group (TCG) and the Tata Group, to creep up its stake in the company in phased manner.

To begin with, the company has engaged KPMG for carrying out due diligence on HPL. The consulting firm had carried out this exercise once before couple of years ago and the fresh exercise would not take long this time.

Once the due diligence is completed, ministry of petroleum and natural gaswill again convene a meeting with lenders, IOC, GAIL and promoters of HPL.

At present, IOC can pick about 7.5 per cent stake in the extended paid up equity of Rs 2,000 crore of HPL. However, there is opportunity to buy the Tata stake. Tata has about 14 per cent stake in the company at present.

On the extended equity, its stake will come down to 8.82 per cent. Of this, Tatas are expected to sale about 6.9 per cent to the state government. This in turn could fall into IOC's lap.

Moreover, the company could buy out stake from the financial institutions (FIs) and banks which would have about 7 per cent stake in extended equity.

Most importantly, GoWB has made it clear that it offload stake in HPL in the long term. This would provide another opportunity for IOC. GoWB and TCG would hold about 27.09 per cent stake each in HPL on the extended equity if they do not make any fresh investment in the company.

However, the critical issue now would be how the shareholders agreement and share purchase agreement are worked out among promoters. At present, the first right of refusal among promoters are within three partners.

For instance, GoWB can not offer Tata share to IOC without prior consent of TCG. IOC is dangling carrot of putting whole host of downstream projects which include expansion of polypropylene, polyethylene and cracker units apart from new styrene, synthetic rubber and condensate unit with total investment of Rs 5,000 crore.