It all started in 2006. In a move that surprised many, the then Buddhadeb Bhattacharjee-led government in West Bengal decided to scrap a private treaty — midway through its implementation — to transfer a 9 per cent stake in Haldia Petrochemicals Ltd (HPL) to its co-promoter The Chatterjee Group (TCG), owned by New York-based venture capitalist Purnendu Chatterjee.
The move denied TCG an opportunity to control HPL, the only one its kind in east India, by claiming a little over 50 per cent in holdings. And there began a legal wrangle that has deprived HPL of every growth opportunity in the past seven years.
TCG now holds nearly 41 per cent in the petrochemicals maker, which has the potential to churn out 3.5 million tonnes of world-class polymer a year, while the State holds over 40 per cent (including the disputed 9 per cent).
In May 2011, when Mamata Banerjee-led Trinamool Congress (TMC) Government came to power, it had an opportunity to settle the dispute.
But in her haste to push the Government agenda, Banerjee, too, ended up joining the court battle (or an ego battle, as many observers call it).
A long battle While the State was busy fighting a control wrangle with TCG, the project started losing heavily, starting 2008. The blame primarily goes to the nearly 140 per cent cost over-run incurred from the Supermax expansion project, which went from an earlier estimate of Rs 625 crore to nearly Rs 1,500 crore, in 2010. This, coupled with the huge interest payout against Rs 3,500 crore loan liabilities, created a serious cash crunch, which hit HPL’s capacity utilisation and led to further losses.
While HPL sources blame TCG for approving the ill-conceived expansion project in 2004 and failing to bring in adequate equity finance as the root cause behind the financial crisis, TCG, it is learnt, cites “mismanagement” (under state leadership), as the prime reason for the debacle.
According to sources, at one point in time, Chatterjee even approached the former Comptroller and Auditor General Vinod Rai seeking a propriety audit in HPL. The result of his plea is not known.
On the balance In October 2012, the Government decided to divest its stake in the project and called for bidders. Chatterjee, who has invested Rs 690 crore in HPL without any returns so far, reportedly welcomed the move, but he is consistently contesting the Government’s claim over the slice of shares he claims belongs to him. The 9 per cent (or 155 million) shares are also bundled with the current disinvestment offer.
TCG now wants to move the International Court of Arbitration in Paris to settle the dispute, and has approached the Supreme Court in this regard.
And giving him some respite, the Calcutta High Court on November 28 stayed the stake sale proceedings “till December 16 or further order”.
In the absence of any visible effort for an out-of-court settlement, there is a fair chance that the legal battle will continue.
And, that leads to an even bigger trouble. For one, IndianOil Corp Ltd (IOC), which had offered Rs 1,700 crore to buy the state stake (67.5 crore shares, at Rs 25.10 apiece ), may be forced to reconsider the deal. Sources say the state-run oil refiner has already served a January deadline to the West Bengal Government.
As per the schedule announced on October 10, IOC was supposed to get a clear view on the issue latest by December 11.
HPL in ICU Meanwhile, HPL’s condition is deteriorating day by day. In September 2013, the company wiped out its peak net worth of Rs 2,844 crore.
The book value per share is in the negative. With monthly losses hovering between Rs 75 crore and Rs 100 crore, the company is destined to be referred to the Board for Industrial and Financial Reconstruction as “sick” by March 2014.
While the legal tussle limits prospects of equity infusion, bankers — led by State Bank of India — recently declined pleas from both TCG and the West Bengal Government for working capital finance.
They want the promoters to resolve the ownership issues first, which, as things stand now, is quite unlikely to get resolved anytime soon.