Chennai: The West Bengal government, which claims Hindustan Motors Ltd (HM) owes it at least Rs.200 crore from a disputed land sale at its Uttarpara factory, is miffed by the carmaker’s decision to carve out its prized Tiruvallur factory and may seek to stall the firm’s proposed restructuring.
State officials are concerned that the rump HM will have more liabilities than it can pay off from its limited productive assets, primarily the Uttarpara factory in West Bengal where it manufactures the antiquated Ambassador car.
To secure the money that it claims from HM from its 2007 sale of 314 acres at its Uttarpara factory, the state may legally oppose the separation of the Chennai factory, officials said, asking not to be named.
“To us it appears to be similar to the restructuring of Rupert Murdoch’s News Corp.,” one of the officials said. “The rump News Corp. is being called the crap co. on Wall Street because the more lucrative assets of the group were moved to the new firm, called the good co. by investors.”
It may unlock value for shareholders but the implications are not the same for the state government, which is a creditor, he said.
The state, according to this official, received a formal notice from HM for its proposed restructuring in the past few weeks. The company’s board had decided on it in early January, show regulatory filings, but took time to firm up the scheme of arrangement for the restructuring.
HM’s Uttarpara factory is also politically sensitive because it employs around 3,000 people. “Putting too much pressure on HM could result in the company shutting its Uttarpara factory,” said another state official. “The state government does not want a repeat of Dunlop and does not wish to be seen in any manner threatening the livelihood of so many people ahead of the 2014 general election.”
It was out of its concern for HM’s employees that the state in December agreed to give the company time to clear its dues. In September, the company had acknowledged its liability of around Rs.200 crore through a memorandum of understanding. Yet, the state’s cabinet ministers collectively decided not to convert it into a formal agreement.
The spat stems from HM’s sale of 314 acres at its Uttarpara factory in 2007 to the Shriram Group for Rs.285 crore. The deal required the approval of the local administration because of West Bengal’s land ceiling laws which cap private ownership of land at 24 acres.
The state had allowed HM to sell only as much land as was required to raise Rs.85 crore for being injected into the operations of the Uttarpara factory for revival. When the sale yielded more, the state staked claim to the difference, while withholding permissions for development of the sold land into a township.
HM’s managing director Uttam Bose said in a phone interview on Saturday that his company was looking to bring in investments from partners into both the Uttarpara and Tiruvallur factories.
“The two units are different,” Bose said, “and potential investors for the Chennai (Tiruvallur) factory are unlikely to be interested in our Uttarpara factory.” The fact that HM has been wallowing in losses for years shows that the two units cannot be run together, he added, explaining the rationale for the proposed restructuring.
HM, according to Bose, has initiated discussions with several carmakers for potential investments into both the factories and the aim is to firm up partnership arrangements by the end of the current financial year.
Though HM recently launched a BS-IV variant of the Ambassador for compliance with pollution norms, Bose admitted that the car may not have much time left for itself. “How many Ambassadors do you see on the road these days?” he asked, adding that only companies that wish to manufacture other vehicles in West Bengal are likely to be interested in HM’s Uttarpara factory.