TCG accused of short-changing PE investors in Haldia Petrochem

In 2015-16, the West Bengal government decided to transfer its stake in Haldia Petrochemicals Ltd (HPL), then a joint venture, to NRI businessman Purnendu Chatterjee’s The Chatterjee Group (TCG), bringing an end to a decade-long ownership battle and poor run of the company.

The next year proved highly rewarding for HPL, thanks to favourable market conditions. Net profit and EBIDTA (earnings before interest, depreciation, tax and amortisation) rose sharply. BusinessLine was among the first to report the change in climate in HPL, in April 2017.

These report(s) are now referred to in a classaction complaint, filed by Ohio-based energy investment company Manbro Energy Corporation which, through a private equity (PE) firm, had invested in HPL. The PE was managed by US-based Chatterjee Advisors LLC, which is reportedly controlled by Purnendu Chatterjee.

In a petition before a New York court on May 15, Manbro, on behalf of other investors in the PE, accused Chatterjee Advisors and a company working for it, Chatterjee Management Company, doing business as TCG, and Purnendu Chatterjee, of shortchanging PE investors who had stayed invested for two decades in the hope of good times.

Investors cashed out

According to the proposed classaction (a copy of which is available with BusinessLine) Chatterjee Advisors cashed out members at below-market prices, depriving them the return on their original investment, made nearly two decades ago, while keeping valuable HPL shares for the promoters.

The reference to HPL is important, as it was allegedly the “only significant investment” of the fund when Chatterjee Advisors decided to cash out the members.

“In (May) 2017, following several years of reduced earnings and restructurings, HPL had reached a turning point… Rather than maximising value for WPPE (PE) investors…who had been invested in the fund for nearly 20 years, defendants saw an opportunity to capture the full upside of this long-term investment for themselves,” the petition said.

‘Artificially depressed’ NAV

“Defendants orchestrated a scheme to make a final distribution to members of the fund at an artificially depressed NAV based upon a non-compliant accounting practice that did not reflect fair market value — a practice that had been flagged as improper by the fund’s external auditors five years prior — while retaining the underlying HPL shares for themselves,” it added.

The NAV amount reflected the initial price at which the fund acquired the shares in the 1990s. “In effect, defendants were simply returning investors’ money after holding it for nearly 20 years, with no return on capital,” Manbro added.

Chatterjee, founder and Chairman of TCG as well as HPL, did not respond to repeated email and WhatsApp messages. Subhasendu Chatterjee, whole-time director of HPL, was also contacted for response but without any result.

An alumnus of IIT-Kharagpur and University of California, Berkeley, Chatterjee was a partner with McKinsey & Company. He was a key decision maker at Soros Fund Management and Quantum Group of Funds before creating an industrial empire in India.

Apart from HPL, his TCG had acquired Mitsubishi Chemical’s PTA (a raw material for making synthetic fibres) facility at Haldia in West Bengal. The group also has investments in biotechnology, real estate and digital technology, among others, in India and abroad.