Uncertainty continues to dog Haldia Petrochemicals. And the attempt by the West Bengal Government on Monday to sell its shares was no exception.
Having created a lot of hype, the State Government ended up attracting only one bid — from IndianOil Corporation— for its investments in Haldia Petrochemicals.
Despite showing initial interest, Reliance Industries backed out of the race at the last moment.
But this ‘open and shut’ case, has now become a raging controversy; the State Government decided to withhold results and cloaked the entire episode in secrecy.
According to some reports, sections within the Government feel that lack of competition may not help the State get maximum value for its investments in HPL. The Government is lucky to have got even one prospective buyer for its shares in a company whose net worth has been eroded and which is entangled in legal complications.
While the promoters were involved in a legal battle , HPL’s book value turned negative and the company ran out of money to buy feedstock.
Leaving aside the financial implications, investing in HPL is risky due to legal uncertainties.
Out of the nearly 40 per cent Government stake, approximately 9 per cent is disputed. The private promoter The Chatterjee Group (TCG) holds close to 41 per cent and if it gets control of the disputed stake, it will have a clear majority in the company.
Even if the Government wins the legal battle (for the 9 per cent disputed holding), the prospective investor will have to live with a disgruntled partner (TCG), who can block key resolutions by virtue of its 41 per cent stake.
IndianOil has bid for the project despite these risks for a few reasons. First, it is a shareholder in the company with about 9 per cent stake. Second, it enjoys the backing of financial institutions that hold over seven per cent interest in the company.
What is most important, IOC has a refinery, at the port city of Haldia. HPL uses naphtha as feedstock which is a residual product of the refinery. Naturally the two have ready synergies.
For IOC , the stake is a bit higher. It has already entered the petrochemicals scene at Panipat. Gaining control over HPL means it can dominate the entire Northern and Eastern markets.
The public sector refiner was therefore prepared to put up with the uncertainties. And it had submitted a relatively aggressive bid for the West Bengal Government’s stake since it expected Reliance Industries to also submit its bid.
The next few weeks will decide whether IOC will be successful in its bid and if the State Government also gains in the process.