The Hindu Business Line : ONGC close to buying SPIC Petro for Rs 1,200 crore

ONGC is poised to conclude an all cash deal for buying up SPIC Petro, a 100 per cent subsidiary of Southern Petrochemicals Industries Corporation (SPIC), for around Rs 1,200 crore.

According to stock market sources, early this month, ONGC and SPIC had agreed on the price based on the independent valuation done by Ernst & Young. The formal agreement is likely to be signed soon.

ONGC sources confirmed the development, but declined to detail further. Several attempts by Business Line to contact Mr A.C. Muthiah, SPIC Chairman, failed to yield results in the last three days.

SPIC Petro has two incomplete PTA and PFY projects at Manali, near Chennai. According to sources in ONGC, the value of the assets has been estimated at around Rs 1,200 crore.

When asked whether the deal size equals asset valuation, the ONGC Director-Finance, Mr R.S. Sharma, said: "We are still working on it". ONGC had been in negotiation with SPIC for the takeover of SPIC Petro since last year. The due diligence exercise was completed in January. According to market sources, the formal announcement is expected once the formalities are over and approvals are obtained by ONGC.

When the project was conceived, it was to produce 2.5-lakh tonnes of PTA and 65,000 tonnes of PFY at an investment of Rs 2,125 crore. When work on the project was stayed by the Madras High Court in October 1997, an amount of Rs 946 crore stood locked up. Of this, SPIC's contribution was Rs 252 crore, and the lenders had brought in Rs 694 crore (principal), against their commitment of Rs 1,347 crore.

At that stage, the PFY plant was more than 75 per cent complete, or about 12 months away from commencement of production. The PTA plant had progressed about 11 per cent, or about two years from completion.

Later, in mid-2003, Tata Consultancy Engineers prepared a report at the behest of the principal lender, IDBI, in which it said that the project would be still viable at a different configuration — 3.15-lakh tonnes of PTA and 80,000 tonnes of PFY at a cost of Rs 2,900 crore.

Sources say that the imported part of PFY plant and machinery still lies, mothballed, in a customs bonded warehouse at the project site. To get it released, dues exceeding Rs 500 crore may have to be paid to the customs.