TCG's Chatterjee: Reeling under a double-whammy

If things had worked out as per Purnendu Chatterjee's plan, the Chairman of The Chatterjee Group (TCG) would by now have been part-czar of the polymer world. His successful bid, along with us-based Russian-born investor Leonard Blavatnik, for Royal Dutch/Shell and BASF's polymer company, Basell NV would not just have received clearance from European regulators, but the acquisition itself would have been completed. And Chatterjee, along with his friend of 15 years, would have been busy trying to "enhance competitiveness, operational efficiency, and financial performance" of Basell (as Blavatnik said of his to-do in a release after the acquisition was completed on August 1).

But today, less than four months after the 55-year-old made banner headlines for partaking in the $5.7-billion (Rs 25,080-crore) takeover, Chatterjee is embroiled in a bitter war with the West Bengal government for control of Haldia Petrochemicals (HPL), jointly promoted (the Tatas hold a token 3 per cent stake) 11 years ago and showcased to the world as an example of the Communist state's new industrial philosophy of development and partnership. On August 3, though, the almost year-old battle between the two took a turn for the worse, with the state government selling 7.5 per cent of its 33 per cent stake in HPL to Indian Oil Corporation (IOC), despite Chatterjee's protests.

The non-resident Indian (he's been an American citizen for 15 years now) responded by dragging the state-owned West Bengal Industrial Development Corporation (WBIDC) to the Company Law Board (CLB), challenging the sale. On August 5, the CLB issued an interim order that did not bar the transfer, but asked status quo to be maintained in shareholding (see From Bad To Worse). A little over two weeks later, Chatterjee filed a second petition with the CLB, alleging fraud and interference by the state government in the day-to-day functioning of HPL.

When BT went to press, a final hearing at the CLB was slated for September 27 and a final verdict expected over the next two days thereafter. Whoever wins the battle will have to face a second round of legal battle in the higher court as the loser will certainly appeal. Says Chatterjee, a director on the HPL board and who splits time between New York and Mumbai: "I never wanted to move the CLB, but I was forced to do that. I still think there is a solution and the two parties concerned will have to sit together and find the solution."

Sudden Souring

Why has a man who's brought in the most foreign direct investment (Rs 800 crore-plus) into West Bengal suddenly fallen out of favour with the powers that be at Kolkata's Writers' Building? There are no black and white answers, made worse by the fact that there are conflicting versions of the fight. But it is safe to say that the reasons behind his falling out have as much to do with business as politics.

The Haldia Petrochemical complex: At the centre of controversy

Curiously enough, maybe it's just coincidence and nothing more, Chatterjee's problems seem to have started as his father-in-law and West Bengal Governor Viren Shah's term was coming to an end in December 2004 (see The Father-in-law Factor). The first signs of trouble emerged at the HPL board meeting of November 8, 2004, when the issue of getting IOC as an investor into HPL was mooted. Chatterjee, of course, opposed the idea. Since then, relations between him and the state seem to have deteriorated rapidly.

However, there are several questions that need answering. For example, the state government had a formal agreement with Chatterjee to sell its share of HPL to him. So why did it renege on the agreement? According to state government officials, Chatterjee never really offered to buy the government's share, besides which he was unable to raise money or offer the expected price of Rs 28 per share. The fact is, Chatterjee did make the offer and even sent a letter dated July 6, 2005, to Principal Secretary (Department of Commerce & Industries), Sabyasachi Sen, informing him that funds had been arranged (from Deutsche Bank) for the purchase of about 519.9 million shares from WBIDC. But the letter does not mention any purchase price. (HPL shares were sold to IOC at Rs 10 a pop.)

THE FATHER-IN-LAW FACTOR Purnendu Chatterjee's pa-in-law Viren Shah was till recently a powerful man in Bengal.

Viren Shah: a guv who knew business Bureaucrats and WBIDC officials, who have been closely associated with Haldia petrochemicals for over a decade now, say it was not only on the issue of Indian Oil's entry into HPL, but a number of other issues like bringing in additional equity capital that strained relations between the state and Purnendu Chatterjee. They say the two enjoyed the best of relations incidentally during Chatterjee's father-in-law Viren Shah's tenure as the West Bengal governor. The industrialist-turned-politician was in the governor's office between December 4, 1999 and December 13, 2004. The Mukand Group chairman was not only a personal friend of former Chief Minister Jyoti Basu, but, as the governor, was effective in helping the state in its industrialisation drive. People in the corridors of power say that even in the initial days of Buddhadeb Bhattacharjee's tenure, Chatterjee was getting along well with the Alimuddin Street and Writers' Building apparatchiks. At one point of time, he was even billed as the blue-eyed boy of the Left brass, after he helped organise luncheon and dinner meetings with US-based industrialists at the Raj Bhawan. It was during Shah's term that HPL was flagged off. The state also clinched another ambitious deal with the Shahs for setting up a private port at Kulpi, near Haldia. It's only after Shah's departure that things started to move for the worse.

The other question relates to the hurry with which the shares were transferred to ioc and the payment cheque encashed (see From Bad to Worse). Although Chatterjee pointed out that a 10-day notice was required as per the share subscription agreement, HPL ignored his demand. Why? When contacted, HPL Chairman Tarun Das refused to comment, stating that the matter is sub-judice.

There's another question that hasn't been answered properly. Why did the state government suddenly decide that Chatterjee could not leverage HPL's assets to fund his part of the Basell deal, when, obviously, he had made the bid with the state government's blessings? Says Nirupam Sen, the state commerce and industries minister: "HPL's proposed association in the Basell deal would have put additional debt burden on the company," which turned the corner only last year.

Finally, did the Hindujas and Reliance Industries expressing interest in West Bengal's petrochem sector draw the state farther away from Chatterjee? Again, there are no straight answers, but that may have been a factor. In the last week of July, Ashok Hinduja met Chief Minister Buddhadeb Bhattacharjee and expressed his interest in investing in petrochem, among other sectors. Reliance, which was one of the bidders for Basell but was not shortlisted, already has investments in Haldia. It has acquired 30 acres of land for putting up storage facility. Besides, in his letter to Bhattacharjee, Reliance Chairman Mukesh Ambani mentioned about a possible mega investment in the petrochem sector in the state-a fact disclosed by the Chief Minister himself on August 1.

At the time of writing this story, Chatterjee seemed set for a long legal battle. Some industry watchers were also busy speculating that, eventually, Chatterjee may just decide to sell out to a bigger player and focus on his other investments in the country (he has about $2 billion or Rs 8,800 crore invested in India). It is possible that the denouement to the HPL drama may end up surprising everyone. But it will take a near-miracle to put Chatterjee back on the pedestal as West Bengal's blue-eyed investor.