Kolkata: Lenders to Haldia Petrochemicals Ltd (HPL) now hold the key to determining how the West Bengal government disposes its 675 million shares, or its 43.27% stake, in the firm.

Seeking transparency: West Bengal commerce and industries minister Partha Chatterjee.

The development comes in the wake of the state government threatening to seek a valuation of its stake through a public auction and the firm’s co-promoter, US-based venture capitalist Purnendu Chatterjee, saying he would legally challenge the move.

Chatterjee, who is also HPL’s chairman, owns 690 million shares, or a 44.23% stake, in the firm.

“On the issue of ownership dispute, the board expressed unanimously the need to secure a speedy resolution of the dispute in a transparent manner without triggering any further litigation," HPL said in a statement at the end of Monday’s board meeting.

HPL’s managing director Partha S. Bhattacharyya has formally informed all key stakeholders that the company wouldn’t survive another legal battle.

For six years, the West Bengal government and Chatterjee fought in various courts until the latter’s claim to a majority stake and allegations of mismanagement were quashed by a 30 September Supreme Court order.

By Yogesh Kumar/Mint

Bhattacharyya has been saying that HPL needs to expand to stay afloat, and that banks wouldn’t lend to the firm unless its promoters resolved the dispute.

Bhattacharyya refused to comment on Monday’s board meeting.

It isn’t immediately clear whether the West Bengal government would follow the advice of the firm’s lenders, but from what its representatives said at Monday’s meeting it is clear that the government will soon convene a meeting with the lenders, said a person who sits on HPL’s board, speaking on condition that he would not be named.

“Whereas it appeared from news reports last week that the state government had made up its mind, it now appears that the lenders are going to be taken on board in the process of determining the fair valuation of the state’s stake in HPL," he added. “Another legal battle would affect the lenders as much as the firm’s shareholders."

IDBI Bank Ltd, State Bank of India (SBI) and ICICI Bank Ltd have a collective exposure of at least 3,300 crore to HPL. Most of it, around 2,100 crore, was taken by the firm as project finance; the rest are working capital loans.

Other stakeholders in HPL are Indian Oil Corp. Ltd and the Tata Group, which own, respectively, 9.62% and 2.88% of the firm’s shares.

Partha Chatterjee, the state’s commerce and industries minister, had said in interviews last week that for the sake of transparency the state would determine the valuation of its stake in HPL through an auction. TCG has maintained that there was no provision for auction in determining the valuation under agreements between HPL’s co-promoters.

The state government is also expected to consider the three legal opinions obtained by HPL from former chief justice of India V.N. Khare, former attorney general Ashok Desai and P.C. Sen, a Kolkata-based barrister. Incidentally, Sen had appeared for the West Bengal government in the protracted legal battle that ended in the apex court on 30 September. HPL produced these opinions before its board members on Monday.

“These lawyers appear to have concluded that the past agreements between the two key promoters survived the 30 September Supreme Court order," said the HPL director cited earlier. Minister Partha Chatterjee had, however, said that according to the legal opinion obtained by the state government, all agreements had become “meaningless" after the 30 September order.

The state did not at Monday’s board meeting reveal details of the opinion obtained by it, according to the HPL director cited above. The state obtained a legal view on its obligations from Kalyan Banerjee, a lawyer and a Trinamool Congress lawmaker at the Centre. The party heads the state government.

Nandini Chakravorty, WBIDC’s managing director and one of the state government representatives on HPL’s board, refused to comment. Another representative, Dipankar Mukhopadhyay, who is the principal secretary in the state’s commerce and industries department, didn’t answer calls made to his mobile phone.

Meanwhile, lenders such as SBI have been pressuring TCG to mortgage stake with them in line with agreements concluded in 2004, under which HPL’s debts were restructured. The matter was to be considered at Monday’s board meeting, but the discussion on it was put off till the dispute over ownership was resolved.

TCG has been claiming that the agreements for debt restructuring from 2004 had envisaged WBIDC selling its stake to Purnendu Chatterjee. Because TCG didn’t secure majority control in HPL, it is unable to fulfil its commitment of mortgaging stake with the lenders.

Despite the 30 September apex court order, TCG claims it has an irrevocable right to the 155 million shares that were to be transferred by WBIDC because it had already paid the state the 38 crore first instalment of the price. The transfer of these shares would give TCG a 54.16% stake in the firm, leaving the state government with only 520 million shares and a minority stake of 33.33%.

HPL’s financial performance was also discussed at Monday’s board meeting, though the “working results" weren’t immediately made public. In fiscal 2012, the company appears to be staring at a pre-tax loss of at least 1,000 crore, according to people familiar with projections made by the management to HPL’s board.

They did not wish to be named.

The current year could be the worst for HPL, which has been making losses for the past few years. Because of the ongoing legal battle, the company could not formally recognise the audited financial results. In the current year, things have become worse because of a sharp decline in margins, and HPL hasn’t been able turn the corner because of an unstable plant. Post capacity expansion, it has been collapsing frequently.

Currently, HPL’s so-called tolling margin, or the difference between the price at which it buys naphtha—the feedstock—and its realisation from the products it sells, has fallen to $150 a tonne from $220 a tonne last year, according the people cited above. This is still significantly better than the current international tolling margin, but the $70 per tonne decline from last year is the sharpest fall HPL has had to cope with in recent years, they added.