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Reliance and IOC in Haldia warm-up

Shaking off months of slumber, The West Bengal govt has decided to seek expressions of interest for selling its stake in Haldia Petrochemicals Ltd

Reliance Industries Ltd and the Indian Oil Corporation (IOC), the country’s top two energy giants, are gearing up to bid for the Bengal government’s stake in Haldia Petrochemicals Ltd (HPL).

Industry sources said both companies were keenly awaiting the publication of the expression of interest by Deloitte on behalf of the West Bengal Industrial Development Corporation (WBIDC), which holds the government shares in HPL. An expression of interest or EoI seeks responses from prospective bidders.

The WBIDC is putting nearly 40% of its stake on the block, emboldened by a Calcutta High Court verdict last month that cleared the decks for the government to discover the best price for its shares. “Reliance (controlled by Mukesh Ambani) will put in a bid if it makes economic sense. The decision will depend on how the government wants to carry out the sale process. The EoI will clear the air to a great extent, ” said a source with direct knowledge of the developments.

A source close to IOC officials said the public sector firm was expected to bid even though it had once preferred a negotiated route with the Bengal government.

The IOC already has an 8.89% stake in HPL. “The company wanted to negotiate directly with the state and buy its share. However, the government has opted for auctions. Even then, the IOC is likely to bid since it already has a presence in the firm as well as at Haldia where the PSU has a refinery,” the source added.

Other industry sources cautioned that although an auction was the best possible route in the post-2G and coal allocations scandal environment, the Bengal government should not expect unrealistic gains from the stake sale. HPL has suffered heavy losses in the past few years, eroding its value, they pointed out.

“Some people may think that acquisition by Reliance will give it a monopoly in petrochem and hence it is ready to pay top dollar. But rebuilding the company will not be an easy task even for companies like Reliance or IOC. The state government should be reasonable in its expectations,” an industry source said.

However, HPL’s potential cannot be underestimated. Its products — polymers that go into the manufacture of plastic — are well accepted among buyers and fetch a premium on some grades because of their quality. Besides, the company is sitting on 1,600 acres, including a 300-acre township at Haldia, leaving scope for both forward and backward integration. But the highest bidder can get the stake only if the existing private promoter, The Chatterjee Group, does not match the best price.

The renewed focus on HPL comes at a time chief minister Mamata Banerjee has turned her attention to industry by taking over a committee that was headed by Minister Partha Chatterjee. Industries minister Chatterjee is the chairman of HPL.

When the chief minister presides over the core committee on industry, she will not only have to fight a perception problem about Bengal’s industrial scenario to the outsider but also face many unanswered questions.

There is still little clarity on a land bank that the government has been citing as a solution to its hands-off policy. It has been suggested that only between 100 and 500 acres can be used for industries even though the bank accounts for three lakh acres.

“The number of the plots would not be more than 120 and more than 75 of these are on faraway islands in South 24-Parganas,” said an official.

Another concern for the industry is the delay in offering incentives. “A series of proposals was sent to the finance department from the commerce and industries department seeking assistance to a few companies over the past two years but none has been cleared so far,” said another official.

Syndicates — a euphemism for extortion gangs that thrive in real estate with political patronage — also operate with impunity.

The new industrial policy promised by the government has not been announced yet. Sources said the draft was pending with the finance department, which could not approve an incentive package because of a financial crunch.

The decision follows last month’s Calcutta High Court verdict, which removed the fetters on the stake sale. Consultancy firm Deloitte is handling the process on behalf of the West Bengal Industrial Development Corporation (WBIDC), which holds around 40% in HPL. State industries minister Partha Chatterjee recently said, “I have cleared Deloitte (stake sale process). The advertisement should appear in a day or two.” He said a number of “big guys” had contacted the state government, expressing their interest in HPL. “There will be many takers for the government’s stake,” he added.

Deloitte was appointed the adviser to the Bengal government in January even before the EoIs were invited because it was apprehended that The Chatterjee Group (TCG), the private promoter of HPL, would challenge the decision. For more than a decade, TCG has been staking a claim on a majority ownership and management control of HPL. It had fought a number of legal battles with the erstwhile Left Front government. It is also engaged in court battles with the Trinamool Congress government.

HPL and its employees have suffered in silence while the standoff between the two principal promoters continued. The company has seen half of its peak net worth getting eroded and is heading towards a referral to the Board for Industrial and Financial Reconstruction.

The company is likely to suffer a loss of `800 crore in 2012-13, mostly because of lack of working capital. HPL never had enough money to buy naphtha — the main raw material — and suffered from sub-optimal capacity utilisation. The overhead cost remained high and the company failed to manufacture enough products.

Bankers, who lent around `3,000 crore in long-term loans and working capital, declined to bail HPL out unless the promoters brought in money. Partha Chatterjee said the WBIDC was likely to extend `100 crore to the company. He had become the company’s chairman in 2012. “The response from the finance department is positive,” he said.

The WBIDC is likely to get a loan of `100 crore from the state government and offer that as quasi equity to HPL. This may encourage the bankers to lend around `400 crore, which is likely to ease the critical situation and offer a breather to the WBIDC to carry out the auction.

However, there is a strong possibility of TCG trying to exercise its legal right to scupper the stake sale process. The April 29 judgment of Calcutta High Court validated TCG’s right of first refusal on WBIDC shares and vice versa. However, Justice I.P. Mukherji has also agreed to the state government’s decision to identify the highest bidder.

TCG group firms will have the option to match the best price failing which there will not be any fetters on the WBIDC to sell its shares to the highest bidder. The same order also mentioned the ouster of industrialist Jamshyd Godrej from the HPL board.

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