Faced with mounting losses and rising debt levels, Haldia Petrochemicals Ltd is selling its majority stake in Lummus Technologies to a Mauritius-based entity belonging to one of the promoter groups with the aim to deleverage its balance sheet.
The company will sell an 85 per cent stake in its wholly-owned subsidiary, HPL Technologies B.V. Netherlands, for $294.95 million (₹2,550 crore), which had formed a joint venture with private equity Rhone Capital to acquire Houston, Texas-based Lummus in 2020 in a $2.7 billion deal via leveraged buyout.
In effect, HPL held close to a 57 per cent stake in Lummus through HTS, which has been valued at $347 million (₹3,000 crore) by KPMG. The sale to Esma Global Mauritius, a company belonging to The Chatterjee Group (TCG) – which is the majority promoter shareholder of HPL – will take place after shareholders clear the proposal.
However, the payout from the deal will be made on a deferred basis to the Bengal-based petrochemical major.
Under the terms of the deal, HPL will get only $40 million (₹346 crore) upfront and the rest over eight years, bearing an interest rate of 3-month SOFR (Secured Overnight Financing Rate) plus 1 per cent. SOFR is an alternative benchmark rate to LIBOR, published by the New York Fed administrator.
The company said the sale will lead to a significant reduction in HPL’s consolidated debt and improve both the asset coverage and loan covenants, thereby strengthening the financial stability of the company and enhancing its comfort with lenders and rating agencies.
HPL had stumped up close to $690 million as part of its share to acquire Lummus Technology, a global leader in developing and licensing process and equipment technologies for the refining and petrochemicals industries, with a portfolio of 140 licensable technologies, from McDermott in FY21.
The acquisition cost included a $512 million which was raised through a foreign currency loan in addition to internal accruals of the company. HPL had to service the loan over an eight-year period starting June 2021.
In a note issued on August 23 last year, rating agency ICRA observed that the acquisition had significantly increased the long-term debt to be serviced by HPL, even as Lummus generated revenues of $636 million with an EBITDA of $172 million in CY2023.
Further, the ability of Lummus Technology to service the $1.4-billion debt on its books remains a key monitorable and any support extended by HPL to Lummus for a shortfall in debt servicing will be a key rating sensitivity, ICRA observed.
The latest annual report of HPL put its borrowings at ₹8,336.4 crore, up from ₹7,980.2 crore in FY23 and estimated the finance cost at ₹748.5 crore at the end of FY24, up from ₹529.2 crore in the previous year. It posted a net loss of ₹1,028.4 crore in FY24, widening from ₹700.7 crore in FY23. It had posted a profit of ₹210.1 crore in FY22 and loss of ₹105.4 crore in FY21, a year in which it acquired Lummus.
In response to The Telegraph’s queries, an HPL official explained the rationale for the stake sale, “Under the terms of the Lummus acquisition, HPL undertook significant obligations towards future repayment of the acquisition debt by HTS. To relieve HPL of its repayment obligations, TCG Group organised funding towards prepayment of the entire loan in HTS books, simultaneously acquiring 85 per cent holding on partial deferred consideration.”
The transaction reduces the net debt of HPL by 85 per cent, thereby reducing leverage significantly, even as the company retains the benefits as Lummus Technology will remain within the TCG fold, it added.
