Spic Petrochemicals appears to be facing a liquidity crunch as it has been unable to cough up the Rs 40 crore compensation to Chennai Petroleum Corporation (CPCL), its former joint venture partner in the proposed PTA and PFY project.
The company has decided to provide a bank guarantee instead of paying hard cash to CPCL, senior financial institution sources said.
A Spic spokesman confirmed the move, but pegged the compensation figure at Rs 36 crore.
"We have to pay a compensation to CPCL, but the figure should be around Rs 36 crore. Out of the options available to us, we chose the mode of bank guarantee. This is entirely a commercial decision to be taken by the two companies and we see nothing unusual about it," he said.
Spic has to pay compensation for deciding to go it alone on its PTA and PFY project. CPCL had dragged the company to court on the issue. The two sides had later entered into an memorandum of settlement.
Sources in Spic's lenders consortium said: "Spic was not in a position to advance any money in view of its tight liquidity position."
In their quest to get the project restarted, financial institutions and banks had had earlier suggested two options to Spic -- to use the mode of bank guarantee instead of cash payments or to seek funds in advance from Tidco.
Spic Petrochemicals requires Rs 140 crore immediately to get the project restarted. Apart from the Rs 40 crore to be paid to CPCL, another Rs 100 crore is required towards paying off creditors and project commencement expenses.
Though the project has been delayed considerably, it is still viable, the institution sources said. They are ready for a restructuring package that would entail sacrifices on their part.
Spic is also considering appointing the M&A group of IDBI as the consultant for the financial restructuring. Besides, the UK-based PCI Consulting Group is in talks with a few global polyester and PTA producers as partners for the project. The consultant has also suggested implementation of the project as it was well located and timed.
