HPL's rights issue under cloud after chairman's exit

Mamata Banerjee is apparently not keen to provide the required money for the proposed rights issue

With Partha Chatterjee’s exit from Haldia Petrochemicals Ltd (HPL) as chairman, the fate of the recently-approved Rs 1,300 crore rights issue is now uncertain. According to sources in the know, West Bengal Chief Minister Mamata Banerjee is not keen to provide the required money — about Rs 520 crore — for the proposed rights issue.

Delaying or cancelling the rights issue would put a question mark over the fate of the ailing petrochem company. The rights issue was planned for the company, which is struggling for working capital, as a last resort to infuse funds into the firm and save it from reporting to the Board for Industrial and Financial Reconstruction (BIFR) as a sick entity.

“They (state government) want the company to run efficiently and save thousands of jobs (direct and indirect) but at the same time they are not ready to infuse money for the rights issue. How can one practically make the company run if the principal promoter has taken such a stance?” asked a WBIDC official, who did not wish to be named. The state government holds almost 40 per cent stake in HPL via the West Bengal Industrial Development Corporation (WBIDC), which is on sale.

Going by WBIDC's stake in HPL, it has to infuse about Rs 520 crore for the rights issue or it has the option to renounce it in favour of the other existing stakeholder, possibly Indian Oil Corporation (IOC), which has about nine per cent stake in the company. However, this would lead to change in the company’s shareholding pattern, which is under dispute. There is also apprehension that The Chatterjee Group — the key private promoter — may drag the matter to the courts if the shareholding pattern changes at this moment, said the person quoted above.

The HPL management has been seeking working capital to the tune of Rs 1,000 crore from the lenders primarily to buy naphtha, a key raw material for the plant. After failing to make lenders loosen their purse strings, the board decided to issue 520 million shares at Rs 25.10 apiece, matching the IOC bid price for the West Bengal government’s stake. Due to inadequate funds, HPL plant is running at 50 per cent of its actual capacity.

It is not clear whether Amit Mitra, who replaced Partha Chatterjee as industry minister, will slip into Chatterjee's role as the next chairman of HPL, but one of the lenders told Business Standard this change of guard would not have much of an impact on lenders stance towards HPL.

“This is the state government's prerogative to make necessary changes, but I do not see any change in our approach owing to the same,” said one of the lenders. State Bank of India, IDBI Bank and Punjab National Bank are the leading lenders of HPL.