A foreign company has shown interest in acquiring a strategic stake in the debt-ridden Nagarjuna Oil Corporation (NOCL), promoted by Hyderabad-based Nagarjuna Group, according to two senior bankers with knowledge of the matter. This has prompted the consortium of lenders to seek a special dispensation for the account from the Reserve Bank of India (RBI). They would like the exposure to be treated as standard rather than a non-performing asset (NPA) on the grounds of a change in management. Bankers believe this will help speed up the deal. NOCL did not respond to an email query pertaining to the special dispensation sought by its lenders.
NOCL’s website says the cost of a 12 million tonnes per annum (mtpa) refinery the company was to build was envisaged at Rs 11,500 crore. However, according to documents accessed by FE, this was revised to Rs 16,523 crore at the end of October 2014. Going by the rule of thumb for funding infrastructure projects—a 75:25 debt-equity ratio— banks’ exposure would be about Rs 12,400 crore. A consortium of at least 17 lenders has financed the project.
An October 2014 financial report says there was a delay in interest payments on term loans of 60 to 90 days by NOCL during FY14 to banks and of more than one year to financial institutions
Incorporated in 2012, NOCL was to set up a 12 mtpa oil refinery in Tamil Nadu in two phases of 6 mtpa each. Touted as the single largest private sector investment in Tamil Nadu, the project has majority shareholders such as Singapore-based petroleum trading company Trafigura, Tata Petrodyne and Tata Sons, apart from the promoter. The project is the anchor unit for the proposed Petroleum Chemical & Petrochemical Investment Region in Tamil Nadu.
A separate letter reviewed by FE notes that the global economic downturn in FY09 adversely impacted the gross refining margins of refiners and that NOCL decided to tweak its project parameters to improve its margins. These changes along with escalation in capex cost and forex issues contributed to the cost overruns in the project. The letter was addressed by banks to the National Housing Board (NHB) seeking a regulatory forbearance for HUDCO, one of the lenders to the project.
NOCL’s parent — the BSE-listed Nagarjuna Oil Refinery — said in its FY14 annual report that the delay in tying up equity for the reassessed cost and effects of a cyclone slowed project execution in FY13. The project was initially expected to be completed by March 2012.
“Keeping in view the steep increase in the project cost due to the delay and proposed enhancement of capacity, NOCL decided to induct strategic investor(s) operating in similar industry. Five potential investors have evinced interest in the project and due diligence exercise is in progress,” the report said. “(NOCL’s) discussi-ons with prospective investors including overseas investors are continuing and are at an advanced stage. The management is optimistic of inducting strategic investor(s), achieving financial closure and completion of project,” the October 2014 document stated.