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Corporate Report

Published on: Aug. 9, 2020, 10:38 p.m.
Silent dealmaker
  • The Haldia Petrochemical plant. Photo credit: Sajal Bose

By Sajal Bose. Deputy Editor, Business India

Haldia Petrochemicals Limited (HPL), once the showcase project of Bengal’s industrialisation push during the Communist regime had witnessed several disruption and obstacles. However, things began to change when The Chatterjee Group (TCG) acquired its controlling stake in 2016 from the newly elected Trinamool government. HPL is now the flagship company of the Purnendu Chatterjee-promoted TCG. The petrochemical major now has been running efficiently and sends positive vibes to the industry.

Recently HPL, along with an international partner Rhone Capital, has acquired the US-based Lummus Technology at an enterprise value of $2.75 billion (approximately Rs20,590 crore) from McDermott International. This is one of the biggest overseas acquisitions by an Indian company. HPL, with its two decades of experience in manufacturing polymer products and downstream chemicals would partner with Lummus in evolving technological improvements for these segments. HPL has 57 per cent stakes in Lummus and the rest is with the Rhone Capital. Lummus Technology under the new dispensation will function as a ‘standalone’ autonomous entity and will have required flexibility and agility to further develop its core competencies.

HPL is one of the largest petrochemical companies in India, situated at Haldia, 125 km from Kolkata. It manufactures commodity polymers like high-density polyethylene (HDPE), linear low-density polyethylene (LLDPE), and polypropylene (PP), as well as chemicals/fuels like benzene and butadiene with intermediates sourced from its naphtha cracker capacity of 700 KTA of ethylene. HPL has been using several process technology suppliers including Lummus for its various units at Haldia. The company is the fourth largest player in the domestic polyolefins market after Reliance, Indian Oil and ONGC Petro Additions.

Armed with a B. Tech from IIT-Kharagpur; M.Sc and PhD in Operation Research from University of California, Berkeley, TCG’s founder chairman Purnendu Chatterjee commented, “Our investments are both strategic and long term, most of which span across 25-30 years. We have primarily focused on knowledge-based enterprises, and Lummus is a great addition to our portfolio.” Leading with innovation, Lummus delivers sustainable value to clients in the area of materials technology. HPL being a long-term client of Lummus can share its customer experience and collaborate with Lummus to co-create innovations for the benefit of the industry, adds Chatterjee.

TCG founded in mid-80s with its headquarter in the US, has an enviable track record as a strategic investor, with businesses in many sectors. The group focuses on knowledge-based industries, owns and controls companies as long term investments in several sectors including petrochemicals, pharmaceuticals, biotech, financial services, real estate and technology, serving the global markets.

A subsidiary of McDermott, Lummus Technology with a heritage spanning 110 years, is a leading master licensor of proprietary technologies in refining, petrochemicals, gas processing and coal gasification sectors, as well as a supplier of proprietary catalysts, equipment and related engineering services. Lummus Technology has around 130 licensed technologies and more than 3,400 patents and trademarks.
An important milestone

Welcoming this development, Leon de Bruyn, head, Lummus Technology said, “For our customers, employees and partners this is an important milestone. We would be able to focus exclusively on providing world class technologies and solutions and developing long term strategies that will allow Lummus to lead and shape the future of our industry.” McDermott has been facing financial difficulties. Hiving off the technology business was part of the group’s restructuring process. It is believed that Chatterjee has been watching the company for last three years. This landmark development will significantly accelerate India’s progress towards ‘Self Reliance’ in materials technology space.

  • Chatterjee: charting new paths

Rhone Capital, established in 1996, having offices in London and New York, is a global private equity firm, which specialises in investments in market leading businesses and has a pan-European and trans-Atlantic presence. The company has stakes in a diversified portfolio of companies in chemicals, consumer products, food, industrial materials, mining and shipping industries. M. Steven Langman, co-founder and managing director said, “Together with Chatterjee, we identified a unique opportunity to acquire a leading establishment. Rhone has deep experience and we look forward to working with the Lummus leadership team.”

Delighted with the acquisition, Subhasendu Chatterjee, whole time director, HPL said, “Licensor of several proprietary technologies in the refining, petrochemicals and gas processing segments, it is a proud privilege to be associated with Lummus Technology. We look forward to the exciting prospect to foster innovations aimed at technological sophistication and enhanced investor satisfaction.”

State Bank of India was the lead banker for the deal. Rajnish Kumar, Chairman, SBI, said, “Acquisition of Lummus, the world’s premier petrochemicals company by Haldia Petrochemicals is a landmark achievement by an Indian company. I hope this acquisition will go a long way in furthering India’s strong footprint in the technology space and support India’s mission of Atmanirbhar Bharat. State Bank of India is happy to be associated with this prestigious acquisition.”

However, there have been some concerns in the management whether it is a good idea to go for high debt acquisition. An astute dealmaker, Purnendu with his risk-taking ability thought Lummus has potential. Earlier in 2016, he also acquired Mitsubishi Chemical’s Indian subsidiary MCC PTA unit producer of purified terephthalic acid at Haldia.

Meanwhile, India Rating and Research recently had downgraded HPL’s long term issuer rating to AA-(negative) from AA. According to the rating agency, the downgrade follows the likely increase in net debt on account of the acquisition of Lummus. The report stated, “HPL is raising a debt of $520 million through a foreign currency term loan in a step down subsidiary, Haldia Technology Services Limited, for which HPL would provide SBLC. The balance $180 million is being funded through cash balance at HPL.”

“HPL has taken lenders’ approval to take out up to $180 million to fund the equity and incidental expenses. At the end of FY20, HPL had given $114 million (approximately Rs8.62 billion) against the $180 million. HPL intends to infuse the balance $66 million plus incidental expenses during FY21. At the end of FY20, HPL had a debt of Rs39.9 billion and cash of Rs21.4 billion post the payment of Rs8.62 billion towards the acquisition. During FY21, the gross debt is likely to increase by Rs40 billion and the cash balance would decline by another Rs7 billion owing to the acquisition,” the research report said. In FY20 HPL clocked a revenue of Rs10,100 crore, a marginal decline from Rs10,600 crore in FY19. Purnendu owns close to 75 per cent of the company.

Value proposition

A source in the company who has knowledge about the deal claims, “It is a landmark achievement for HPL. Owning a technology company always has an advantage. Lummus and HPL together would be in a position to provide a more compelling ‘value proposition’ to the clients of Lummus in India and abroad. Serving the debt will not be an issue.” Though Rhone Capital is a partner in the acquisition, they will not have any role to run the company and remain as an investor, he adds.

HPL today is running 95 per cent of its plant capacity. The motivation level of HPL is very high backed by its visionary leader, says a veteran in the industry.

As part of the ambitious growth plan, TCG has decided to put up a petrochemical project at Cuddalore in Tamil Nadu. It is reportedly looking for partners and strategic investors. The estimated investment of Rs50,000 crore will be done in phases in a span of 4-5 years. HPL is expected to acquire 2,158 acres of land in Cuddalore, from Nagarjuna Oil Corporation (NOCL) – which is under liquidation – for a consideration of Rs700 crore. NOCL went into insolvency soon after it started constructing the refinery. HPL had joined the bidding in the NOCL’s liquidation process and got the go ahead from NCLT. TCG also has plans to develop similar project in Odisha. “Cuddalore is the better choice, as land is readily available,” say sources in the company.

It is reported that due to Covid-19 pandemic and lockdown, petrochemical industry is likely to suffer in the current financial year as some of its key end user segment such as construction and automotive sectors have impacted. The demand for polymers in India is likely to see a growth of 1-2 per cent as against the average growth of 6-7 per cent in the last few years.

Purnendu has successfully changed HPL’s fortune. His next bet is to grow it further sustainably.

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