BackHaldia management in a bind as losses mount
Haldia management in a bind as losses mount
PremiumOn the edge: Haldia Petrochemicals is facing the fifth shutdown since Partha S. Bhattacharyya took over as managing director on 1 April. By Indranil Bhoumik/Mint
Kolkata: While the promoters of Haldia Petrochemicals Ltd (HPL)—the West Bengal government and The Chatterjee Group (TCG)—squabble over ownership and control, the firm’s management led by managing director Partha S. Bhattacharyya is struggling to avoid reporting the company as potentially sick.
Losses in the past few years have eroded almost ₹ 800 crore of HPL’s net worth. If the company posts a net loss in excess of ₹ 675 crore this fiscal year, its net worth would diminish by about half from its peak of ₹ 2,844 crore some four years ago. Under Indian corporate law, that will force HPL to report itself to the Board for Industrial and Financial Reconstruction (BIFR) as potentially sick. The board is a quasi-judicial body that provides creditor protection to financially stressed firms.
Such reporting to BIFR will seriously impair HPL’s ability to raise finances for expansion. Besides, the money invested by its promoters in the form of equity—around ₹ 1,600 crore—and at least ₹ 3,300 crore of funds lent by banks is at stake.
Expansion is key to HPL’s survival, according to its chairman Purnendu Chatterjee. On 30 May, Chatterjee said at a press conference in Kolkata that HPL should expand its product offerings to mitigate the effects of downturns in the petrochemical cycle. Such an expansion will cost at least ₹ 3,500 crore.
Besides struggling to keep the plant running—it costs at least $300,000 (around ₹ 1.5 crore today) to restart operations after each shutdown—production has been scaled back by 25% of HPL’s peak capacity for maintenance, according to the firm’s engineers, who did not want to be named.
“Considering that margins are thin, we decided to shut one of HPL’s units for repair," one of them said. “To repair this unit could take up to 40 days." Overall production has fallen by 25% from peak capacity because of the closure of this unit.
That apart, production has had to be completely suspended several times—a week or so ago, for the fifth time in nine months—because of technical problems, another engineer said. “We had initially thought that we will be able to fix the plant in seven days, but now it seems we need at least a week more," he added.
Bhattacharyya said the management was focusing on “nut-and-bolts repairs", efficiency and cost rationalization to make sure HPL “made the most" of the upturn seen coming in the petrochemical industry towards the end of 2012.
“For instance, HPL has managed to improve its yield to 47%—the highest in its history—whereas earlier it failed to scale 46%," Bhattacharyya said. He was referring to HPL’s output-to-input ratio. “Energy efficiency of the plant has also improved lately."
Yet, HPL is possibly staring at a pre-tax loss of around ₹ 1,000 crore in fiscal 2012, according to people who sit on the firm’s board and are familiar with financial projections made by the management. These people, too, refused to be named.
In fiscal 2011, HPL made a net loss of around ₹ 250 crore. The company’s annual financial results have not been ratified by the board for years because of restrictions arising out of the legal battle between the promoters.
HPL’s loss in this fiscal year will expand because its so-called tolling margin—the difference between the price of naphtha, its feedstock, and realization from the products it sells—has fallen by $70 a tonne from last year to $150 because of adverse market conditions. Asked if HPL will be able to avoid reporting its financial stress to BIFR, Bhattcharyya said, “We are keeping fingers firmly crossed."
Alongside, HPL is planning to hire a consultant to conduct a technical audit of its plant and to advise it on fixing the problems.
This person, whose named was not disclosed, has in the past worked in a similar capacity with Exxon-Mobil Corp., according to the engineers cited above. He has already visited HPL’s plant and his initial impression about it was that it “isn’t bad—average", one of the engineers said.
aniek.p@livemint.com
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