RBI provides special dispensation enabling bankers to treat the company’s exposure as standard account
The Reserve Bank of India (RBI) has given lenders to Haldia Petrochemicals (HPL), once a showpiece project in West Bengal, a special dispensation. A banker close to the development told FE this will allow lenders to avoid classifying the exposure as an NPA (non-performing asset) despite HPL having undergone a second round of loan restructuring.
Ashutosh Bose, CFO & executive VP, HPL, confirmed to FE the central bank has provided the special dispensation enabling banekrs to treat the HPLexposure as a standard account. “We will not be treated as an NPA and banks will not have to make any provisions on our account. The special dispensation by the RBI has been given due to the nature of our business which is impacted by extraneous factors like changes in naptha prices,” said Bose.
Bankers, led by IDBI Bank, recently agreed to a R2,300-crore restructuring package, which includes the sanction of fresh working capital loans. The first round of loan restructuring took place in 2003. Indian banking regulations stipulate that companies that are restructured more than once must be classified as an NPA.
The two co-promoters, The Chatterjee Group (TCG) and West Bengal Industrial Development Corp (WBIDC), were in the midst of a battle over management control for several years until September 2014 when the state government decided to pare its stake in the company and hand over control to TCG. The West Bengal government has decided to sell a majority of its 40% stake in the company to (TCG) which also holds about 40% in HPL.
According to previous news reports, the payment of R1,300 crore is expected to be made in two tranches. Sources say that the TCG group is expected to make the payment by July.
The HPL plant, located at about 125 kms from Kolkata, was shut for seven months starting July 2014, owing to shortages of cash flows as naptha prices rose sharply.
Revenues fell 6% to R8,130 crore in FY14 while finance costs rose 16% year-on-year to R503 crore and the company posted losses of R464 crore. In FY13, the losses were R960 crore. Bose said that with the financial support from banks and the fall in naptha prices the company has been able to restart operations since February 2015. “The company has also been able to win back the customers that could not be supplied when the plan was shut down,”.
The price of naphtha, the main feedstock of the petrochemical plant, is down at around $500-550 a tonne as compared to $1,000 in July, when the plant was shut due to lack of working capital.
A public sector banker told FE that in 2012 the company appointed a retired IAS officer, Sumantra Chowdhury, as the new managing director of HPL, giving greater control of the operation of the company to the state government. Subsequently in November 2014, the former MD of Mangalore Refinery and Petrochemicals (MRPL), Uttam Kumar Basu took over the reins and exited in December 2014. The company has been run by a management panel comprising representatives from the state government and and TCG ever since. The company’s FY14 Director’s report throws light on the problems the company has been facing. It states that company has been facing “extremely adverse financial conditions”.
Haldia did not have sufficient working capital in FY14 which restricted the plant’s output to 40-60% of its capacity and thus did not generate any operating profits.”Your company made several efforts to raise throughput to self-sustaining levels. Your company invited Expression of Intent (EOIs) from interested business houses for product swap against naphtha supplies. However, the response remained muted and could not be materialised,” the report said.
The directors went on to add that infusion of funds by one of the promoters and working capital funds released by lenders did not have the desired effect due to principal and interest payment obligations. “Since the funds were disbursed in small tranches, it could not be effectively utilised for augmentation of processing capacity,” the report said.
The report also highlighted the company’s doubts to continue as a viable enterprise. Due to lower production volumes in the two fiscals leading to FY14, Haldia was forced to reduce supplies to several markets thus losing customers, which in turn switched to other domestic sources or imports.
“The uncertainties regarding business survival have severely affected the morale of all stakeholders, making business transactions increasingly difficult with passage of time… Going forward, your company may require special sincere efforts to regain confidence of these customers, as and when, your company plans to improve operating rates and increase placement of products in domestic market,” the report said.