The Hindu Business Line : Bankers reject SPIC's `improved proposal' for debt revamp

As per the new policy of the Ministry of Fertiliser, all naphtha-based urea plants have to convert to natural-gas feedstock within three years by September 30, 2009.

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Chennai Feb. 15 Southern Petrochemical Industries Corporation faces the prospect of having to close down urea production as bankers have rejected yet another proposal of the company for debt restructure.

The SPIC Managing Director, Mr Babu K. Verghese, said in a letter to bankers in January that if the bankers did not lend further, it would be "impossible" for SPIC to convert its naphtha-based plant to gas-based within the stipulated time of three years and "hence, the plants will have to be shut down in three years."

The group of lenders, which met last week, has rejected SPIC's "improved offer". In May 2006, SPIC had suggested a settlement plan envisaging settlement of 42 per cent of the loans and a write-off of the other 58 per cent. "Since the proposal was not accepted by the lenders," Mr Verghese said the company had made a "sincere effort to improve the offer", which involved a waiver of up to 48 per cent of the loan.

Last year, Deutsche Bank had come forward to fund $350 million to SPIC, provided a settlement with lenders could be arrived at. Earlier, the bank had taken April 1, 2006, as the cut-off date for the purpose of arriving at the dues of all lenders and the details of settlement. Deutsche Bank has since agreed to a revised cut-off date, September 30, 2006 for the

purpose.

Options

With an in-principle approval from Deutsche Bank, SPIC, in its January proposal, gave four options to lenders, each envisaging payment of a part of the loan, conversion of another part into 2 per cent redeemable preference shares, conversion of yet another part into unsecured bonds and a waiver. The option that involved the highest payment to banks was for 52 per cent cash settlement and 48 per cent waiver.

However, the company also retained the option of calling for conversion of the preference shares into equity.

Now that this proposal has been rejected by lenders, SPIC's fate hangs in balance. As per the new policy of the Ministry of Fertiliser, all naphtha-based urea plants have to convert to natural-gas feedstock within three years by September 30, 2009.

Otherwise, the subsidy would be linked to import parity prices, "which will be only 50 per cent of the actual cost of production based on naphtha as feed stock," says the SPIC letter.

"If we do not initiate immediate action for conversion to gas, for which the company will have to incur a capital expenditure of Rs 250 crore immediately, it will be impossible to meet the deadline," Mr Babu Verghese has said in the letter.

It is understood that in the lenders meeting, bankers wanted to know what sacrifice the promoters would make for the loan restructure. Both the Chairman, Mr A.C. Muthiah, and the Vice-Chairman, Mr Ashwin Muthiah, have given their personal guarantees.

A banker said that most of the lenders were public sector banks and as such, they would have no option but to invoke the personal guarantees, sooner or later.

More Stories on : Restructuring | Sick Units | Fertilisers

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