Officials said HPL makes strategic sense for IOC as it has a significant stake in the company and also supplies feedstock naphtha to it. (Officials said HPL makes strategic sense for IOC as it has a significant stake in the company and also supplies feedstock naphtha to it.)
Officials said HPL makes strategic sense for IOC as it has a significant stake in the company and also supplies feedstock naphtha to it.
(Officials said HPL makes strategic sense for IOC as it has a significant stake in the company and also supplies feedstock naphtha to it.)

IOC lone bidder for West Bengal govt’s 40% stake in Haldia Petro

Govt will offer TCG, HPL’s co-promoter, a chance to match the bid of IOC under first refusal right

Kolkata/Mumbai: Indian Oil Corp. Ltd (IOC) on Monday emerged as the lone bidder for the West Bengal government’s 40% stake in Haldia Petrochemicals Ltd (HPL), and is likely to be announced as the chosen one to take over the state’s 675 million shares in the firm, according to two people aware of the developments.

The price offered by IOC wasn’t immediately known, but experts estimate it to be less than 30 a share. Considering the current health of HPL, the price offered by IOC is likely to be 20-25 a share, they said.

The government will offer the Chatterjee Group (TCG), HPL’s co-promoter, an opportunity to match the bid of the state-owned refiner and oil marketing company, honouring its right of first refusal on West Bengal Industrial Development Corp. Ltd’s (WBIDC’s) stake in the firm.

Reliance Industries Ltd (RIL), which received encouragement from chief minister Mamata Banerjee to invest in HPL, didn’t present a bid at all, said a state government official who did not want to be named. RIL had initially expressed interest in bidding for WBIDC’s stake.

This led to the legal question whether the state government could consider IOC’s bid to be valid, the state-owned firm being the sole bidder. Under standard operating procedures followed by government organizations, such single response to an open auction is expected to be rejected, and the sale process scrapped.

After extensive deliberation with lawyers from law firm Amarchand and Mangaldas and Suresh A. Shroff and Co. and experts from Deloitte Touche Tohmatsu India Pvt. Ltd, the consulting firm advising WBIDC on the stake sale, it was decided that the sale process need not be scrapped because single tender norms aren’t strictly applicable in this case, said the official cited above. Because TCG is to be given an opportunity to match the highest bid, the single bid need not be seen as “the lone response to an open auction", he explained.

While refusing to disclose the price offered by IOC, Partha Chatterjee, HPL chairman and West Bengal’s commerce and industries minister, said, “We never said that the financial bids will be opened today. We are hopeful of completing the process within seven-eight days (after consultation with the group of ministers overseeing the stake sale)."

He sidestepped questions on how many financial bids were received on Monday.

IOC, which already owns 150 million shares in HPL, or an 8.89% stake in the firm, had two options, according to an official of the public sector firm, who, too, did not want to be identified.

“We could either divest our stake in HPL or increase it," this person said, adding that the IOC board decided to take the risk of bidding for the West Bengal government’s stake despite some of the conditions in the share purchase agreement being “onerous" and “heavily skewed in favour of the seller".

Several companies such as Cairn India Ltd, Oil and Natural Gas Corp. Ltd (ONGC) and GAIL (India) Ltd had initially expressed interest in acquiring WBIDC’s 675 million shares in HPL. They did not eventually bid because they had differences with the state government over the share purchase agreement.

One contentious issue was the state’s spat with TCG over 155 million of its 675 million shares. Under an agreement struck in March 2002, WBIDC was to transfer 155 million shares to TCG, handing it management control of HPL. Though the deal was eventually aborted, TCG claims it has irrevocable right to acquire 155 million shares from the state government.

The dispute over the shares is currently being heard at the Calcutta high court. Some of the companies that had initially expressed interest in HPL had demanded that WBIDC should agree to compensate the buyer of its stake for any loss arising out of an unfavourable court order over the disputed shares.

If TCG can secure these 155 million shares, representing about 9.18% of HPL’s equity capital, it will gain control of the firm. TCG currently owns 40.88% in HPL.

The IOC official said the state government had lately revised the share purchase agreement to address this concern. The highest bidder could “back out and recover its money from the state government" under the revised share purchase agreement, he said.

But it appears that companies such as RIL, ONGC and others that didn’t bid on Monday didn’t derive “enough comfort" from the late revision in the share purchase agreement, according to the state government official cited above.

TCG declined to comment on Monday’s development.

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