Kolkata: Tea and fertilizer producer Duncans Industries Ltd is in talks with three potential buyers for its urea plant in Kanpur, Uttar Pradesh, chairman G.P. Goenka said.
The plant, which has been shut since 2005, has the capacity to produce up to 722,000 tonnes of urea a year. It has liabilities of around Rs600 crore and accumulated losses of Rs500 crore.
Duncans had in 1994 acquired the plant from chemicals and paints manufacturer ICI India Ltd.
For years, Duncans has been trying to sell the fertilizer plant and use the money to repay its debts. Last May, it nearly reached an agreement with a Hong Kong-based private equity firm to sell the plant, but new restrictions on restarting urea plants scuppered the deal.
The Union government last year said that closed fertilizer plants could not use naphtha to restart production, which meant the Duncans plant, which uses only naphtha as raw material, would have had to begin using natural gas to restart production. “To turn the plant into a gas-fired one would have taken at least 18 months,” said Goenka. “This meant no payback for the buyer for one-and-a-half years.”
The Union cabinet, however, is expected to issue a new order allowing closed fertilizer plants to restart production with naphtha as raw material, Goenka said. “But all such plants would have to switch to gas within a definite time frame. I am hopeful that we should be able to close the deal within this financial year.” If Duncans finds a buyer, it plans to spin off its fertilizer plant into a separate company. “It could be a joint venture in the beginning, but eventually, we are going to exit,” Goenka said.
Reviving the plant could cost Rs250 crore but Goenka said by “investing Rs200-250 crore you could raise the production capacity to 800,000 tonnes (a year), turn the plant into a gas-fired one, which is going to cost around Rs80 crore, and also refurbish it to restart production”.
Duncans’ shares closed at Rs11.60 apiece on the Bombay Stock Exchange on Wednesday, 1.3% down from Tuesday, while the bourse’s benchmark Sensex index gained 1.63% to close at 17,126.84 points.
Even if the Union government withdraws its restriction on the use of naphtha as a raw material, selling the fertilizer plant might not be easy, said an investment banker who is familiar with Duncans.
“It’s an old plant…restriction on use of naphtha as raw material isn’t its only problem,” he said, speaking on condition of anonymity.
Goenka said potential buyers have in the past conducted thorough technical due diligence of the plant, and “no one ever questioned if production could be restarted”.