Kolkata: The board of Haldia Petrochemicals Ltd (HPL) on Tuesday decided to raise close to 1,300 crore by selling 512 million shares to existing shareholders amid strong opposition to the move from The Chatterjee Group (TCG), a co-promoter of the beleaguered polymer maker.

In the wake of a severe working capital shortage, this was the “only way" to save HPL from suspending production, managing director U.K. Bose said.

TCG chief Purnendu Chatterjee opposed the proposal at Tuesday’s board meeting, though he didn’t cite any reason for it, Bose said.

For the first time in many years, Chatterjee held out an olive branch and offered to settle through discussion all outstanding legal disputes with West Bengal Industrial Development Corp. Ltd (WBIDC), the other promoter of HPL. But state government officials do not immediately seem to be interested in parleys.

HPL’s board decided to offer shares to its equity holders in the ratio of one for every 30 currently held at 25.10 a share—the price offered by Indian Oil Corp. Ltd (IOC) to acquire WBIDC’s 40% stake in the firm. A spokesperson for TCG, which owns 41% in the firm, said Chatterjee was miffed at the price being determined in this manner.

The aim of the share sale is to save HPL from being referred to the Board for Industrial and Financial Reconstruction as a potentially sick enterprise, the company said in a statement. If the rights issue goes through, the injected cash will be used to pay down loans and seek refinancing from lenders on easier terms, according to HPL. The firm has lately been defaulting on repayment of loans.

To be sure, pricing for rights issues is determined through independent valuation, and it is unusual to take the price offered by a competitor to acquire a substantial stake as the fair price for a share sale to existing shareholders.

“But there is no inequity in this deal," said a government official, asking not to be named. “Even the state government—not just TCG—will have to pay 25.10 a share to subscribe to the rights issue."

Asked if the state government would subscribe to the rights issue, which means it would have to pay out of its already-stretched finances around 520 crore, Partha Chatterjee, West Bengal’s commerce and industries minister, didn’t commit that it would. This triggered speculation that WBIDC could pass up its right to additional shares in favour of IOC, which currently owns close to 9% in HPL.

Emerging from the board meeting on Tuesday, Purnendu Chatterjee said he had suggested other options to rescue the company, including an “out-of-court settlement" of disputes with WBIDC, but he didn’t elaborate what he had proposed.

TCG has already moved the Calcutta high court seeking an injunction on steps that could alter HPL’s equity capital in the light of the pending arbitration proceedings over the disputed ownership of 155 million shares currently held by WBIDC. If the legal battle intensifies, HPL may be forced to stall production.