Haldia Petrochemicals on the verge of loan default for the first time

27-Sep-12

The West Bengal government-controlled Haldia Petrochemicals Ltd (HPL) is for the first time on the brink of defaulting on long-term loans taken from Indian banks and foreign institutions, as per livemint. Rs.98 crore needs to be paid to lenders and Rs.35 crore to its insurer by 30 September. However, the management has said that HPL does not have the Rs.133 crore it needs to pay within four days. The firm’s outstanding debt is approaching Rs.4,000 crore, and the management said last month it would be impossible to repay this with cash flow from operations. The company has scaled back production by 50% from its installed capacity because of working capital shortage, rendering it unable to buy naphtha, its feedstock. HPL has an inventory worth Rs.250 crore, but because of adverse market conditions, it is unable to sell this. Banks will not have to immediately declare its loans to HPL as stressed assets—they will wait for at least 60 days. The foreign lenders to which HPL owes Rs.30 crore could get priority. This is not the first time that HPL is facing a financial crisis of this nature; but in the past it managed to tide over situations like this by taking short-term loans from Indian banks. This time is different because lenders have of late stopped making loans to the company, as they insist on a share sale to strategic investors.