The Abhay Oswal-promoted Oswal Chemicals and Fertilisers is set to sell its di-ammonium phosphate unit at Paradip in Orissa to the Indian Farmers' Fertiliser Cooperative (Iffco) for Rs 2,180 crore (Rs 21.80 billion) in cash.
Sources close to the development said Iffco had emerged as the highest bidder for the unit, pipping public sector major Kribhco to the post by Rs 100 crore (Rs 1 billion).
The decision to sell the unit to Iifco in what could be India's biggest all-cash deal was reached during a meeting of the managements of the companies in New Delhi on Friday and will be announced shortly.
Oswal has agreed to sell the unit for Rs 2,180 crore. Of this, Rs 265 crore (Rs 2.65 billion) will be paid to the promoters and Rs 1,915 crore (Rs 19.15 billion) will go to the institutions that financed the project. Iffco has paid an advance of Rs 50 crore (Rs 500 million) to the Oswals to seal the deal.
Though Oswal Chemicals and Fertilisers refused to comment on the development, sources said Abhay Oswal had told key employees about his decision after the company's board meeting in Paradip on Saturday.
The Oswal Chemicals and Fertilisers plant, set up in the late 1990s as the world's largest grassroots di-ammonium phosphate plant, can produce 2 million tonnes of the fertiliser a year.
However, the unit has been shut down on several occasions by the state pollution control board for alleged inadequate emission safety. And its mounting losses have been bleeding the Oswal group.
The deal will be a rare instance of a farmers' co-operative taking over a part of a family-owned company in India. Iffco has the financial strength to absorb the plant: in March 2005, it had a net worth of Rs 3,301 crore (Rs 33.01 billion), made up of Rs 2,880 crore (Rs 28.80 billion) reserves and Rs 421 crore (Rs 4.21 billion) equity capital.
The reserves will dwindle significantly after the purchase, but given that Iffco is free of debt, it can raise significant resources to meet its $1 billion plan to ramp up fertiliser capacity.
This includes a phosphoric acid plant in Egypt, a second phosphoric acid plant in Kutch and a di-ammonium phosphate plant in Kandla. Last year, the company achieved its highest production of 6.15 million tonnes.
Oswal Chemicals and Fertilisers, which has another unit at Shahjahanpur in Uttar Pradesh, will use the money to pay off its outstanding debt to financial institutions.
The company incurred a net loss of Rs 313 crore (Rs 3.13 billion) on sales of Rs 1,540 crore (Rs 15.40 billion) in 2004-05. The promoters hold nearly 55 per cent of the company's equity.
The share price of Oswal Chemicals and Fertilisers has been rising of late. The scrip reached its 52-week high on the National Stock Exchange on Friday at Rs 31.70, 5.14 per cent higher than its previous close. Nearly 467,000 shares were traded.
