The Chatterjee Group buys 90% stake in Mitsubishi Chemical India

Purnendu Chatterjee-led The Chatterjee Group (TCG) has picked up a majority stake in Mitsubishi Chemical Corporation's (MCC) Indian unit in Haldia in West Bengal for an estimated $48 million (Rs 322.27 crore) which has given TCG management control of the sick company.

According to the share purchase agreement, of the 6.4 billion shares of MCPI (MCC PTA India Corporation) - the Haldia-based Indian entity of MCC, TCG will buy 5.8 billion shares or pick up 90 per cent stake in the company with MCC retaining 600 million shares.

The process of the share transfer will include conversion of the MCC loans to MCPI into common shares, and increase MCPI capital share with MCC as underwriter by the share transfer date, which is scheduled for the end of October this year. This will increase the percentage of the MCPI common shares held by MCC to a maximum of 99.4 per cent.

After completion of the above capital increase, MCC will transfer all the shares except for a shareholding ratio of nineper cent to TCG on the share transfer date resulting in MCPI becoming a non-consolidated affiliate of MCC.

With a total investment of around Rs 3,600 crore made in two phases, MCC's Indian entity has an installed capacity of 1.27 million tonne per annum and has a turnover of around Rs 6,000 crore. The total capital of MCPI is valued at Rs 739.3 crore.

However, the plant in Haldia, which makes PTA (Purified Terephthalic Acid) became a sick unit in April 2013 and has subsequently been referred to BIFR.

PTA is the favoured raw material to the growing polyester and polyester fiber industries in India.

To combat the challenges faced by its Indian entity, MCC extended additional support to MCPI (MCC PTA India) in the form of enhanced technical assistance, softer loans and focused management guidance to achieve stable production at 100 per cent rate and improved economics in operation. However, the company continued to remain sick owing to the sudden build-up of huge overcapacity in China since 2011 and resultant dumping in Indian market.

According to a company statement, MCC would be keen on sharing its experience and lending technical expertise to The Chatterjee Group run Haldia Petorchemicals Ltd (HPL) located next door so that it could have the benefit of value addition in order to improve its economic performance.

However, it is now known if the newly acquired plant will be amalgamated into HPL - the face of industrial resurgence in West Bengal. Several calls to reach its officials went unanswered.

MCC would also like to contribute in similar fashion to the development of downstream chemical units that may be set up in the area in due course, to help emergence of a larger chemical complex in the Haldia region.

MCPI's main problem is the substantial amount of debt it has incurred over the course of operations, the huge accumulated loss of Rs 4,000 crore and its continuance as a 'sick unit' under the BIFR.

According to the statement, the only way MCPI can overcome the bleak scenario is by infusing large amounts of additional capital to take it out of the fold of BIFR and to make it a zero debt company. This would enable it to mitigate its debt servicing and depreciation liability, factors that had been considerably affecting its profitability.