Kolkata: Key officials of Mangalore Refinery and Petrochemicals Ltd (MRPL) on Monday met West Bengal’s commerce and industries minister Partha Chatterjee to seek the government’s permission to conduct a due diligence exercise at Haldia Petrochemicals Ltd (HPL), formally announcing for the first time its interest in acquiring the beleaguered firm.
The West Bengal government, which is one of HPL’s co-promoters, owns 40% of the firm. The state is looking to sell its stake in HPL, but The Chatterjee Group (TCG)—the other co-promoter of the firm—isn’t willing to wash its hands of HPL. TCG owns 41% in HPL. The state government cannot, under existing agreements with TCG, unilaterally sell its stake in HPL.
Mounting burden: West Bengal’s commerce and industries minister Partha Chatterjee. HPL’s total debt is approaching Rs 4,000 crore. Photo: Indranil Bhoumik/Mint
MRPL, a subsidiary of government-owned Oil and Natural Gas Corp. Ltd (ONGC), is looking to acquire HPL for “forward integration”, MRPL managing director U.K. Basu said in Kolkata on Monday. “We made a presentation to the West Bengal government and asked for permission to conduct the due diligence exercise,” he added.
Partha Chatterjee, who is also HPL’s chairman, refused to comment on Monday’s discussions. He, however, said he would inform HPL’s board about MRPL’s proposals at its next meeting on 19 June.
HPL managing director Partha S. Bhattacharyya appears to be in favour of handing the reins of the company to a public sector company from the petrochemical sector, according to the firm’s employees. Addressing HPL’s employees at a town-hall meeting last week, Bhattacharyya said the company needs integration with a naphtha-producing refinery for long-term viability.
Naphtha is HPL’s key feedstock. Strapped for cash, HPL is unable to buy naphtha and has had to scale back production to 50-55% of its peak capacity.
A spokesperson for TCG wasn’t immediately available for comments.
Asked why MRPL was looking to buy HPL despite its financial woes, Basu said MRPL faced similar uncertainties until ONGC bought majority control in it in 2003 and helped restructure its debts by infusing cash.
HPL’s lenders have already told its co-promoters that unless they inject cash into the company or commit to bring in a strategic investor, working capital loans wouldn’t be forthcoming. HPL’s total debt is approaching Rs 4,000 crore—more than three times its equity capital.
HPL needs at least Rs 300 crore in fresh working capital loans immediately to step up production, according to a finance department official, who did not want to be named. “Naphtha prices have lately declined, and if HPL is able to buy naphtha again, it will be able to scale up production to at least 90% (of its peak capacity),” this person said. “This will lead to more optimal recovery of fixed costs and help the management cut losses significantly.”
The firm’s management is going to make another attempt to convince banks to make fresh loans at a meeting of HPL’s loan monitoring committee on 13 June. The meeting has been convened by banks in Mumbai to review whether the two co-promoters had made any progress in injecting cash into the company.