BackIndian Oil Corp’s bid for Haldia Petrochemicals stake accepted
West Bengal’s commerce and industries minister Partha Chatterjee said IOC’s bid was ‘much higher’ than the reserve price
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Kolkata: The West Bengal government on Thursday said it had accepted Indian Oil Corp. Ltd’s (IOC) lone bid for West Bengal Industrial Development Corp. Ltd’s (WBIDC) 40% stake in Haldia Petrochemicals Ltd (HPL), but didn’t immediately disclose the price offered by the state-run refiner and oil marketing company.
IOC, which currently owns 150 million shares, or an 8.89% stake, in polymer producer HPL has offered around ₹ 25 per share, valuing the firm’s 700,000-tonne per annum naphtha cracking facility, 125km from Kolkata, at around ₹ 4,200 crore, according to two key state government officials familiar with the figure.
These officials refused to be identified, saying that the state government has decided that it will disclose the exact figure only after it could send a formal notice to HPL’s co-promoter, The Chatterjee Group (TCG), stating the price that it will have to pay to claim WBIDC’s 675 million shares.
The state government is legally bound to give TCG, which owns 41% of HPL, an opportunity to match IOC’s bid to honour its right of first refusal on WBIDC’s stake. The state couldn’t on Thursday send the notice to TCG arm Chatterjee Petrochem (Mauritius) Co.’s office in Mauritius.
TCG has to decide on buying the West Bengal government’s stake within 30 days.
West Bengal’s commerce and industries minister Partha Chatterjee said on Thursday that IOC’s bid was “much higher" than the reserve price determined through discussion with consulting firm Deloitte Touche Tohmatsu India Pvt. Ltd, which advised WBIDC on the stake sale.
The state government had almost agreed to sell its stake to TCG at ₹ 28.80 a share in 2005, when the company was in a much better health.
The deal was later called off and the co-promoters moved court for a protracted legal battle, which hasn’t yet ended.
The price discovered through the auction this week is “excellent" for the state government in view of the current state of affairs at HPL, which has been making losses for several years and whose peak net worth has almost been completely eroded, said a petrochemical expert and former employee of the firm. This person, too, did not want to be named.
HPL has lately been struggling to pay for naphtha, its main feedstock, because of acute cash flow problems. As a long term strategy for survival and to protect itself against cyclical swings in the polymer market, experts have always said that HPL needs backward integration with a feedstock producer such as IOC or Mangalore Refinery and Petrochemicals Ltd.
“Looking back, it is deeply satisfying for state government officials that this deal could be concluded within nine months," said one of the officers cited above. “We owe it in great measure to our advisers: Deloitte and Amarchand (and) Mangaldas (and Suresh A. Shroff and Co.)." Amarchand Mangaldas was the legal advisor to the state government.
Considering that the West Bengal government took years to conclude the sale of the Great Eastern Hotel in Kolkata—the only comparable big ticket disinvestment in the state—the speed at which the sale of WBIDC’s stake in HPL was concluded took even TCG by surprise, top officials disclosed privately.
TCG, which has been trying to legally block the stake sale, refused to comment on this week’s developments.
TCG claims it has irrevocable right to acquire 155 million of the 675 million shares that WBIDC is looking to sell, arising from an aborted deal signed between it and the state government in 2002.
If TCG is able to legally secure the 155 million shares, it will gain control of HPL.
On the other hand, if IOC is able to take over WBIDC’s 675 million shares, it will secure an almost 49% stake in HPL and will become its single largest shareholder.
IOC’s bid was received on Monday.
Reliance Industries Ltd, which was initially seen to be keen to buy WBIDC’s stake in HPL, didn’t eventually present a financial bid on Monday because of “commercial reasons", said a person familiar with the decision by the Mukesh Ambani-controlled firm. He did not want to be identified.
IOC’s bid being the lone response to the open auction held by the state government, there was considerable deliberation within the state government over the past couple of days on whether to scrap the sale process and invite fresh bids; but the group of ministers overseeing the sale eventually decided not to do so based on the advice of Deloitte, and Amarchand and Mangaldas.
“This is not a case of public procurement," said one of the officers cited above. “There are at least 10 cases of stake sales by various governments in India to lone bidders."
Going forward, IOC wants all outstanding legal disputes between WBIDC and TCG resolved through discussion, said an official of the oil marketing company, asking not to be identified. “We will seek the state government’s help in settling these court cases," he said. “It isn’t helping either party—only HPL is bleeding."
Asked if IOC was willing to manage HPL jointly with TCG, this official said, if it benefits HPL, IOC will surely weigh the wisdom of such as arrangement.
TCG chief Purnendu Chatterjee, though, didn’t take kindly to HPL issuing 150 million shares to IOC in 2004.
Though he had initially agreed to IOC buying a stake in HPL, he later opposed it.
Chatterjee has always maintained that HPL should not be run like a state-owned enterprise or controlled by one.
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