Kolkata: The management of Haldia Petrochemicals Ltd (HPL) is examining ways of deferring routine payments to lenders and vendors to overcome a cash flow crisis—a throwback to the difficult times in the early 2000s when the company was struggling to stay afloat amid mounting debt.
The cash-strapped company considered scaling back production despite recently expanding capacity by around 30% at a cost of Rs1,260 crore, according to two persons familiar with the situation. They did not want to be named.
However, it was decided at a Wednesday board meeting that HPL would carry on producing at full capacity for now, they added.
The company needs to borrow at least Rs100 crore immediately to meet working capital needs, one of them said. “But that alone will not do,” he added. “The management has been told to explore ways of deferring some routine payments.”
Possibilities to be explored include deferring payments to lenders and seeking credit from state-owned refiner Indian Oil Corp. Ltd, which has a 9.6% equity stake in HPL and supplies naphtha, the key feedstock.
HPL will have to pay at least Rs284 crore in interest in the current fiscal as against Rs187 crore in 2009-10, according to documents reviewed by Mint. It is currently indebted to the tune of Rs2,300 crore, after having borrowed around Rs350 crore recently to ramp up capacity.
Weak polymer prices are making matters worse for HPL, the second person said. With inventory piling up, the company cut prices of its key products two weeks ago, and could consider another price cut soon.
“HPL’s management has indicated to the board that polymer prices may not improve till the end of August,” he added.
HPL denied facing any cash flow problem. “HPL is currently running its plant at (a) very high operating level and getting good margins,” a spokesperson for the company said in an emailed statement.
“Business is generating enough cash; additional fund from outside is not required. HPL’s account is always regular with all its bankers,” the statement added.
HPL, jointly promoted by the West Bengal government and The Chatterjee Group, posted a net loss of Rs183 crore on a net revenue of Rs3,389 crore in the year to 31 March, according to provisional results reviewed by Mint.
Pre-tax loss was higher at Rs247 crore, but pared by deferred tax assets of Rs64 crore. The company missed its revenue projections for 2009-10 by at least 20%.
The poor performance is being blamed on 47% capacity utilization during the year. The company’s management had in the beginning of the year envisaged capacity utilization of 78%, but couldn’t meet that target because of forced shutdowns, besides planned suspension of production for capacity expansion.
“Last year, plant shutdown was taken for (a) project requirement and certain maintenance requirements,” the HPL spokesperson said. “No planned shutdown will be taken this year and the capacity utilization is expected to be very high.”
HPL’s management has projected a net profit of Rs522 crore for the current fiscal, according to documents reviewed by Mint.
One of the key reasons for HPL’s current cash crunch is the delay in completing Project Supermax—the moniker by which the capacity expansion programme is known within HPL—and cost overruns, according to the two persons cited earlier.
HPL increased its naphtha cracking capacity to around 700,000 tonnes per annum from 522,000 tonnes. Project Supermax was concluded earlier this year.
The budgeted expenditure on Project Supermax was Rs650 crore, which went up to Rs1,260 crore in the end, said one of the persons quoted earlier. Whereas this was to be entirely funded by internal accruals, it increased the company’s indebtedness.
“And worse still, the expanded capacity kicked in when the petrochemical industry is going through a downturn,” he added. “Had the project been completed on time, market conditions would have been much better.”
The two key promoters of HPL have been fighting court cases for the past five years over ownership and management control of the company.