PRELIMINARY INFORMATION MEMORANDUM (PIM)

 

MADRAS FERTILIZERS LIMITED (MFL)

June 2003

 

ICICI SECURITIES LIMITED

 

 

1.         This Preliminary Information Memorandum (“PIM”) is being provided in connection with the proposed disinvestment of 33.5% of the total voting equity share capital of Madras Fertilizers Limited (hereinafter referred as “MFL”) held by Government of India (“GoI”)  and 25.77% of the total voting equity share capital of MFL held by National Iranian Oil Company (hereinafter referred as “NIOC”). Thus a total of upto 59.27% of the total voting equity share capital of MFL may be disinvested by this process.  However, in the event the GoI decides to  offer a part of its equity stake to the employees of MFL, the same will be offered out of the aforesaid 33.5% of the total voting equity share capital being disinvested by GoI  and the total of 59.27% of the total voting equity share capital proposed to be disinvested would stand reduced to that extent.

 

2.         ICICI Securities Limited (herein after referred as “ICICI Securities”) has been appointed as the advisors (“Advisors”) for the disinvestment and Luthra & Luthra, Law Offices (“Luthra & Luthra”) has been appointed as the legal advisors for the disinvestment process by GoI.

 

  3.       The sole purpose of this document is to  provide information to the interested parties  and is not intended to form the basis of any investment decision or any decision to purchase the equity offered for sale.  This document does not constitute nor should it be interpreted as an offer or invitation or recommendation for the sale or purchase of securities described herein.

 

4.         This PIM does not purport to be all-inclusive or contain all the information about MFL or be the basis of any contract.  No representation or warranty, expressed or implied, is or will be made as to the reliability, accuracy or the completeness of any of the information contained herein. It should not be assumed that there shall be no deviation or change in any of the herein mentioned information on MFL.  While this document has been prepared in good faith, neither MFL nor GoI nor NIOC nor ICICI Securities nor Luthra & Luthra nor any of their respective officers,  employees, advisors or agents make any representation or warranty or shall have any responsibility or liability whatsoever in respect of any statements made or omissions here from. Any liability is accordingly expressly disclaimed by MFL, GoI, NIOC, ICICI Securities, Luthra & Luthra and any of their respective officers or employees, advisors or agents even if any loss or damage is caused by any act or omission on the part of MFL, GoI, NIOC, ICICI Securities, Luthra & Luthra or any of their respective officers or employees, advisors or agents.

 

5.         Nothing in this PIM is, or should be relied on, as a promise or representation as to the future. By acceptance of this document, the recipient agrees that any information herein will be superseded by any later written information on the same subject made available to the recipient by or on behalf of MFL, GoI and NIOC. GoI, NIOC, ICICI Securities, MFL and any of their respective officers or employees, advisors and agents undertake no obligation, among others, to provide the recipient with access to any additional information or to update this document or to correct any inaccuracies herein which may become apparent, and they reserve the right, at any time and without advance notice, to change the procedure for the sale of all or any part of the equity and/or terminate negotiations or the due diligence process  and/or refuse the delivery of information, at any time prior to the execution of the Transaction documents without any prior notice or stating any reasons therefor and without incurring any liability in respect thereof.

 

6.         Accordingly, interested recipients should carry out an independent assessment and analysis of MFL and of the information, facts and observations contained herein.

 

7.         This PIM has not been filed, registered or approved in any jurisdiction. Recipients of this document resident in jurisdictions outside India should inform themselves of and observe any applicable legal requirements.

 

CONTENTS

 

Section	Title
Part A	Submission of Expression of Interest (EoI)
Part B	Madras Fertilizers Limited
	Annexure I – A copy of the Advertisement
	Annexure II – Expression of Interest
	Annexure III – Statement of Legal Capacity
	Annexure IV – Request for Qualification
	Annexure V – Government of India Guidelines for                         Qualification of Bidders
	Annexue VI – Guidelines for management-employee bids

 

 

 

A.                                 SUBMISSION OF EXPRESSION OF INTEREST

 

1. INTRODUCTION

 

1.1  Madras Fertilizers Limited (MFL), a Central Public Sector Undertaking, is primarily engaged into manufacturing and marketing of urea and NPK fertilizers and trading of imported Di-Ammonium Phosphate and Muriate of Potash. MFL has an aggregate capacity to produce 840,000 tonnes of NPK fertilizers and 486,750 tonnes of urea per annum. MFL has a dominant position in the South Indian market with a market share of 9.9%, 9.5% and 17.7% in N, P and K nutrients respectively consumed in south India during FY2002. MFL markets its fertilizers under the “Vijay” brand name. The present shareholding pattern of MFL is: Government of India (GoI) - 59.50%, National Iranian Oil Company (NIOC) - 25.77% and Public - 14.73%.

 

1.2       In accordance with its disinvestment programme, GoI wishes to, through a competitive bidding process, which shall be handled solely by GoI, disinvest 33.5% of the total voting equity share capital of MFL held by it to a strategic investor along with management control.   NIOC, which is holding 25.77% of the total voting equity share capital in MFL, also intends to disinvest its entire voting equity share capital to the strategic investor identified by GoI.  The proposed disinvestment by GoI and NIOC is hereinafter referred to as the “Transaction”. Thus, the Transaction involves the disinvestment of upto 59.27% of the total voting equity share capital of MFL. In the event, GoI decides to offer a part of its equity stake to the employees of MFL, the same will be offered out of the aforesaid 33.5% of the total voting equity share capital being disinvested by GoI and the total of 59.27% of the total voting equity share capital proposed to be disinvested would stand reduced to that extent.

 

1.3             This Preliminary Information Memorandum (“PIM”) has been prepared to enable potential bidders to submit their Expression of Interest (“EoI”), subject to `Limitations and Disclaimer’ set out earlier

 

1.4             ICICI Securities Limited has been appointed as the Advisors and Luthra & Luthra, Law Offices as the legal advisors for the disinvestment process.

 

1.5             GoI had earlier invited Expression of Interests (“EoIs”) for disinvestment of 32.74% (now increased to 33.50% due to forfeiture of shares) shareholding in November 2000 vide advertisements in leading Indian and international newspapers/ publications. In response to the above, interest was received from a number of parties.

 

GoI has recently taken a number of policy initiatives relevant to the nitrogenous fertilizer industry, which are as follows:

 

1.      Notification by Fertilizer Industry Coordination Committee (“FICC”) under the Department of Fertilizers (“DoF”) vide circular issued on June 4, 2002 relating to the changes in the policy parameters under the 7^th and 8^th pricing periods i.e. July 1, 1997 to March 31, 2000 and April 1, 2000 to March 31, 2003.

 

2.      Announcement with regard to the long term pricing policy for urea units based upon the recommendations of the Expenditure Reforms Committee (“ERC”)

 

1.6                Restructuring of existing debt of MFL, which may significantly impact the financial position of the company, is also under consideration.

 

1.7                Further NIOC has agreed to offer its shares for sale along with the GoI under the strategic sale transaction, taking the total equity on offer   upto 59.27% of the total equity of MFL.

 

1.8                In light of the above, there has been a material change in the existing financial position and the prospective business and operating environment of MFL.

 

1.9                Therefore, it is now proposed to reinvite the EoIs for the disinvestment of upto 59.27% equity stake in MFL.

 

1.10     For the purposes of this Transaction, the potential bidder shall ascertain the applicability of all laws including Indian laws and shall ensure compliance with the same.

 

2.       ADVERTISEMENT INVITING EOI

 

An advertisement has been issued in leading business and other newspapers inviting interested parties to submit their EoI to participate in the disinvestment process, a copy of which is enclosed as Annexure-I. The GoI reserves the right to terminate or alter the bidding process at any stage, without prior notice or assigning any reasons therefore and without incurring any liability in respect thereof.

 

Party(ies) that had expressed their interest in the transaction in response to the earlier advertisement may send a letter to the Advisors confirming their continued interest in the transaction and that they are eligible as per the terms and conditions stated in the PIM and will comply with the same.

 

3.       EXPRESSION OF INTEREST

 

            The process of participating in the disinvestment process and the requirements relating to information to be provided by interested parties when submitting their EoI is set out in the ensuing sections. 

 

4.       ELIGIBILITY/ PRE-QUALIFICATION CRITERIA

 

4.1       The EoI may be submitted by domestic or foreign incorporated entities either as a sole bidder or as part of a consortium, for acquiring the said voting equity share capital in MFL being disinvested subject to the terms and conditions specified in this PIM and any other subsequent additions and modifications.

4.2       In case of a consortium bid, there will be a lead bidder, who will be singly required:

 

(a)    in the case of direct shareholding  in MFL  by the consortium members - to be the single largest shareholder amongst the members of the consortium and such shareholding of the lead bidder shall be more than 50% of the  total voting equity share capital in MFL being disinvested; or

 

(b)     in the case of company promoted / to be promoted by the consortium members for acquiring the said voting equity share capital in MFL being disinvested - to be the single largest shareholder of such company  and such shareholding of the lead bidder shall be more than 50% of the total voting equity share capital of such company

 

4.3       In case of a sole bidder, the net worth of the sole bidder should be in excess of Rs.1 billion (Rs. 100 Crores) as per the latest audited annual accounts; and it should have a satisfactory business and management track record.

 

4.4       In case of a consortium bid, the combined net worth of all the consortium members should be in excess of Rs. 1 billion (Rs. 100 Crores) and the networth of the lead bidder must be at least 51per cent of this amount. The name of the lead bidder must be specified in the EoI.  Each of the consortium partner should have a satisfactory business and management track record[1].

4.5     Bids by management/employees of MFL directly and independently or in consortium or Joint Venture or a Special Purpose Vehicle (SPV), along with a bank, venture capitalist or a financial institution will be considered in accordance with the guidelines issued by Ministry of Disinvestment, annexed herewith as per Annexure VI    (“Guidelines”) if the legal entity so formed is qualified as per the criteria laid down in the PIM.

 

4.6    Net Worth = Equity Share Capital + Free Reserves & Surplus – deferred revenue / miscellaneous expenditure not written off – debit balance in Profit and loss account.

              

4.7    Where the financial statements are expressed in currency other than the Indian Rupee, the eligible amount as described above shall be computed by taking the equivalent US Dollars at the exchange rates (as stipulated by Foreign Exchange Dealers Association of India) prevailing on the date(s) of such financial statements.

 

4.8    Interested parties should note that in terms of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations,1997, the strategic partner selected to acquire shares of MFL from GoI and NIOC, may be required to make a public offer to acquire further shares of MFL in accordance with these regulations. For further details, interested parties may refer to the Securities and Exchange Board of India regulations in this regard.

 

4.9    This Preliminary Information Memorandum (“PIM”) along with its enclosures does not constitute any commitment on the part of the GoI or NIOC or MFL or ICICI Securities, whether in respect of the disinvestment process or otherwise. Furthermore, this invitation confers neither any right nor expectation to any party to participate in the said process.

 

4.10   GoI, NIOC and MFL reserve the right to withdraw from the process or any part thereof, to accept or reject any or all offers at any stage of the process and/or modify the process or any part thereof or to vary any terms at any time without assigning any reason whatsoever.  No financial obligation whatsoever shall accrue to the GoI or NIOC or MFL or ICICI Securities in such an event.

 

5.       INITIAL PROCESS

 

5.1    Following receipt of this PIM, interested parties will be required to submit an EoI Package comprising an Expression of Interest, a Statement of Legal Capacity and a Request for Qualification in formats specified in Annexures II, III, and IV.

 

5.2    Party(ies) that had expressed their interest in the transaction in response to the earlier advertisement may send a letter to the Advisors confirming their continued interest in the Transaction and that they are eligible as per the terms and conditions stated in the PIM and will comply with the same.

 

5.3    Based on an evaluation of the EoI Package received, interested parties which are deemed to be qualified by the GoI (“Qualified Interested Parties” or “QIPs”) will be allowed to participate in the subsequent selection process (without conferring any right or expectation whatsoever to the QIPs).

 

5.4    Following signing of a Confidentiality Undertaking (“CU”) by duly authorized personnel, QIPs will be provided with the Bid Packet comprising the Confidential Information Memorandum (“CIM”) and the Request for Proposal (“RFP”) and will be invited to participate further in the process as detailed in the RFP.

 

 

6.       FILING REQUIREMENTS

 

6.1  Interested parties must submit, in duplicate, their EoI accompanied by a Statement of Legal Capacity and Request for Qualification (“RFQ”), as per the formats given in Annexures II, III & IV of this PIM. This comprises the EoI Package.

 

 

6.2  EoIs must be signed by a duly authorised representative of the interested party/designated lead bidder. However, in the case of a consortium,   Statements of Legal Capacity and RFQs would have to be submitted by each member of the consortium duly signed by an authorized official of the member of such consortium.

 

6.3 All EoI Packages must be in English and each copy shall be bound in a separate volume.  Submission of the aforesaid documents by fax, e-mail or other electronic means will not be acceptable. It is the responsibility of the interested party(ies) alone to ensure that its EoI with required documents is delivered at the address given below by the stated time and date. The covering envelope containing the aforesaid document should be clearly marked “Expression of Interest - MFL”. Neither the GoI nor NIOC nor MFL nor ICICI Securities shall be responsible for non-receipt of correspondence.

 

6.4  The EoI Package must be submitted by no later than 17.30 hours (Indian Standard Time), 30^th June 2003 at either of the following addresses:

 

Dhanpal Jhaveri Sr. Vice President Head – M&A Advisory ICICI Securities Limited 41/44 Minoo Desai Marg Colaba, Mumbai 400 005   Tel : +91 22 22826449

Or

Indraneil Borkakoty Vice President ICICI Securities Limited ICICI Bank Towers NBCC Place Pragati Vihar Bisham Pitamah Marg New Delhi 110 003, India Tel : +91 11 24308337

       

 

7        EOI FILED BY CONSORTIA

 

7.1 If a consortium is formed, or proposed to be formed, specifically for the purpose of this investment, details of the members of the consortium  and the extent of their interest herein must be provided in the EoI Package.

 

7.2 Any change by way of withdrawal/substitution/inclusion of any member of the consortium or any change affecting the composition of the consortium may be permitted prior to the stage of submission of financial bid, but only with the specific approval of the GoI. GoI or MFL or ICICI Securities have the sole discretion to determine the impact of the change in membership on the quality of the consortium and reject a proposal for such reason.

 

7.3    The Government of India issued guidelines for qualification of bidders seeking to acquire any public sector enterprises through the process of disinvestment vide Department of Disinvestment OM No.6/4/2001-DD-II dated 13th July, 2001, a copy of which is enclosed as Annexure-V.  The interested party(ies) are required to read the guidelines and satisfy themselves that they are qualified to bid for the stake in MFL through the process of disinvestment. The interested party(ies) would be required to submit the following:

 

 

§         an undertaking to the effect that they are qualified to bid for the stake in MFL.

 

§         an undertaking to the effect that no investigation by a regulatory authority is pending against them.

 

 

·        In case any investigation is pending against the concern or its sister concern or against its CEO or any of its Directors/Managers/employees, full details of such investigation including the name of the investigating agency, the charge/offence for which the investigation has been launched, name and designation of persons against whom the investigation has been launched and other relevant information should be disclosed, to the satisfaction of the Government.

 

§         provide other relevant information as required in the guidelines of 13th July, 2001

 

7.4     In addition to the above, the RFQ should be duly filled in and accompanied by the following details:

 

 

1.      In case of a sole bidder

 

·        The audited balance sheet and profit & loss account of the sole bidder (Indian company/foreign company) for the last 3 financial years.

 

Write-up on:

 

·        Profile of the sole bidder

·        A statement of reasons for strategic interest in MFL

·        Details of litigation and/or legal/ statutory enquiry if any, including litigation by the bidder against MFL.

·         Statement as regards any indictment by any income tax, sales tax, customs or excise authorities.

·        Authorisation/delegation of power to enable the authorized signatory to sign the EoI

·        Any other information considered material

 

 

2.      In case of a consortium bid

 

·        The audited balance sheet and profit & loss Account for the last 3 financial years of the lead bidder and other member companies associated in the bid.

 

 

·        Write-up on:

 

Lead bidder

 

·        Profile of the lead bidder

·        A statement of reasons for strategic interest in MFL

·        Any other information considered material by the lead bidder

 

Other member companies

 

·     Profile of member companies in the consortium

·     Any other information considered material

  

·              Details of litigation and/or legal/ statutory enquiry if any, including litigation by the bidder(s) against MFL.

 

·               Statement as regards any indictment by any income tax, sales tax, customs or excise authorities.

 

·              Document evidencing authorisation/delegation of power by each of the consortium members(s) to enable the authorized signatory to sign the EoI.

 

 

8        DISQUALIFICATION

 

8.1 The GoI shall not consider for the purpose of qualification, an EoI which is found to be incomplete in content and/or attachments and/or authentication, etc.

 

8.2 Without prejudice to any other rights or remedies available to GoI, a sole bidder  or a consortium may be disqualified and its EoI dropped from further consideration for any reason whatsoever including those listed below:

 

·         misrepresentation by  the bidder or any member of the  consortium;or

 

·        failure by the parties mentioned above to provide necessary and sufficient information required to be provided in the EoI, along with the Statement of Legal Capacity and RFQ, pursuant to relevant sections of the PIM;or

 

·        submission of an EoI along with Statement of Legal Capacity and RFQ in respect of any entity/company/consortium, where such company or any member of such consortium has already submitted an EoI.

 

8.3 If information becomes known which would have entitled the GoI to reject or disqualify the interested party(ies) the GoI reserves the right to reject the interested party(ies) at the time, or at any time after, such information becomes known to the GoI.

 

8.4 Where the interested party is a consortium, the GoI may disqualify the entire consortium for any of the reasons (but not limited to) set out above, even if it applies to only one member of the consortium.

 

8.5 Further, GoI has issued guidelines for disqualification of bidders seeking to acquire any public sector enterprises through the process of disinvestment vide Department of Disinvestment OM No.6/4/2001-DD-II dated 13 July, 2001, a copy of which is enclosed as Annexure-V. Interested party(ies) not satisfying the qualification criteria under the guidelines will not be qualified to bid for the stake in MFL..

 

8.6 The interested parties not satisfying the eligibility and requisite qualification criteria specified in the above sections  are not eligible to bid for the stake in MFL.

 

8.7 The sole bidder, lead bidder, member of a consortium and the consortium as a whole not satisfying the eligibility and requisite qualification criteria specified in the above sections are not eligible. It must be noted that the sole bidder, lead bidder, member of a consortium and the consortium as a whole must be eligible, as per the criteria mentioned above, on the date of submission of the EoI and shall continue to be eligible throughout the Transaction.

 

9        FUTURE PROCESS

 

9.1 Based on the EoI submitted by the interested parties, GoI, advised by ICICI Securities, will carry out an evaluation of the qualification of such interested parties. If at any time during the evaluation process, GoI or ICICI Securities requires any clarification in order to carry out the evaluation, it reserves the right to request such information from any or all of the companies/ consortium and the companies/ consortium will be obliged to respond to any reasonable request for such information and to supply the same to ICICI Securities within such reasonable time frame as GoI or ICICI Securities may require.

 

9.2 Based on an evaluation of EoIs received, interested parties, which are deemed fit will be (“Qualified Interested Parties” or “QIP”) invited to participate in the subsequent selection process (without conferring any right or expectation whatsoever to QIPs). QIPs will be required to sign a Confidentiality Undertaking (“CU”) by the duly authorized personnel.  QIPs will be provided with the Request For Proposal (RFP) and the Confidential Information Memorandum (CIM) and shall be invited to participate further in the process described in detail in the RFP. QIPs will get an opportunity to conduct a due diligence and take up plant visits and will also have access to data rooms and hold discussions with the management of MFL/officials of Ministry of Chemicals and Fertilizers/Ministry of Disinvestment, Government of India. The rules regarding access to information in the data rooms will be provided to QIPs later. QIPs will be invited to submit their proposal and a binding price bid.

 

 

 

10   ENQUIRIES

 

The GoI and ICICI Securities reserve the right, in their sole discretion, not to respond to any questions raised or provide clarification sought, if it is considered that it would be inappropriate to do so. Nothing in this section shall be taken or read as compelling or requiring the GoI and ICICI Securities to respond to any question or to provide any clarification. No extension of any time and date referred to in this PIM shall be granted on the basis or grounds that the GoI and ICICI Securities has not responded to any question/ provided any clarification.

 

11   GOVERNING LAWS/JURISDICTION/ ARBITRATION

 

All matters relating to the disinvestment process and the bidding procedure shall be governed by the law of Union of India. Only Courts at New Delhi (with exclusion of all other Courts) shall have the jurisdiction to decide or adjudicate on any matter, which may arise.

B. MADRAS FERTILIZERS LIMITED

 

Name:                                  Madras Fertilizers Limited (“MFL” or the Company”)

Registered Office:              Manali, Chennai – 600 068, Tamil Nadu

Year of incorporation:       1966

Liaison Office:                    At New Delhi

Marketing Area Offices:   At Trichy, Salem, Madurai, Vellore in Tamilnadu,       Hyderabad, Guntur, Vijayawada, Cuddapah in Andhra Pradesh, Bangalore, Raichur, Devangere, Hubli in  Karnataka &  Cochin in Kerala

  

1        HISTORY

 

MFL was incorporated on December 8, 1966, as a joint venture between GoI and Amoco, USA in accordance with the Fertilizer Formation Agreement executed on May 14, 1966, with equity contributions of 51% and 49% respectively. The original technology was supplied by Chemico of USA.

 

In accordance with the participation agreement dated May 14, 1966 between GoI, Amoco and National Iranian Oil Company, a company owned by the Government of Iran, NIOC acquired 50% of the shareholding of Amoco in MFL on November 22, 1972. With this acquisition, Amoco and NIOC each held 24.5% in MFL with the balance 51% being held by GoI. 

 

Subsequently, on July 22, 1985, Amoco divested its shareholding, which was proportionately purchased by GoI and NIOC. As a result, GoI and NIOC shareholding changed to 67.55% and 32.45% respectively. After a rights issue in 1994, the holding of GoI and NIOC stood at 69.78% and 30.22% respectively. MFL had an Initial Public Offering of its shares in May, 1997. MFL’s shares are listed in the Mumbai Stock Exchange, National Stock Exchange and the Madras Stock Exchange.

 

Subsequent to forfeiture of 20,76,600 shares held by some of the shareholders due to non payment of allotment money of Rs 7.50 per share subscribed in May 1997, the shareholding pattern has undergone change with effect from  April 24, 2001.  Accordingly, Rs. 1.04 Cr will separately feature as share forfeiture amount under share capital in the books of the Company.

 

The shareholding pattern of the company as on March 31, 2003 was as follows:

 

Shareholders	% Stake
GoI	59.50%
NIOC	25.77%
Public & Others	14.73%
Total	100.00%

Source: Company

2        GROWTH OF OPERATIONS

 

The original production facilities of MFL were commissioned at Manali, Chennai in 1971. These included Ammonia, Urea and NPK plants (two trains) along with related offsite and utilities, raw material handling, bagging & shipping facilities. The third NPK train was added in November 1976. Other additions included captive power plant installed in two phases (1983 and 1991) and water treatment facility consisting of tertiary treatment plant and reverse osmosis plant. The first biofertilizer plant was set up at Manali in 1991. Two more plants were subsequently added at Bangalore and Vijayawada in 1996-97. The Company started to trade in agrochemicals in 1990 and neem based pesticides were added to the portfolio in 1997.

 

MFL’s plants commissioned in 1971 had become old and less efficient. The Company undertook a major revamp cum modernisation exercise of its plants at a cost of Rs. 601 crores during 1993-98. The Company’s original ammonia- urea plants were of Chemico design. After the revamp, the technology in the ammonia plant was changed to Haldar Topsoe A/S, Denmark and that in urea to Urea Technologies Inc., USA. The NPK plant was built and revamped by Hindustan Dorr Oliver, India.

 

3        BUSINESS OVERVIEW

 

MFL is involved in the manufacture and marketing of urea and NPK fertilizers and trading of imported Di-Ammonium Phosphate and Muriate of Potash. MFL is a leading producer of complex fertilizers in the country. MFL has an aggregate capacity to produce 840,000 tonnes of NPK fertilizers and 486,750 tonnes of urea per annum. MFL has a dominant position in the South Indian market. In FY2002, MFL had a market share of 9.9%, 9.5% and 17.7% respectively in N, P and K nutrients consumed in South India. MFL markets its fertilizers under the “Vijay” brand name.

 

The main NPK product of MFL is 17:17:17. Other NPK/NP grades produced by MFL include 14:28:14, 19:19:19, 20:20:0 and 18:46:0 (DAP). MFL’s other businesses include manufacture and marketing of agrochemicals and biofertilizers.

 

4        SALES AND MARKETING

 

MFL markets the Vijay brand of fertilizers in the states of Tamilnadu, Andhra Pradesh, Karnataka, Kerala and Maharashtra. MFL has its own regional marketing teams in these States. MFL follows an indirect distribution system comprising two channels – dealers and direct marketers. MFL had a dealer network of 6,912 dealers and field marketing personnel in these States as on September 30, 2002. MFL has also appointed 14 direct marketers in these States.

 

5        MANUFACTURING FACILITIES

 

MFL’s fertilizer plants are located at Manali, Chennai. The Company has recently revamped and modernized its plants at a cost of over Rs. 600 crores. The installed capacity of plants before and after the revamp is as follows:

 

 

Installed capacities

 

Plant	Location	Capacity (MT)
		Pre revamp	Post revamp
Ammonia	Manali	248,000	347,000
Urea	Manali	292,000	487,000
NPK	Manali	540,000	840,000
Biofertilizers	Manali, Bangalore, Vijayawada	400	400

Source: Company

 

MFL’s utility facilities consist of a Process Condensate Boiler, Heat Recovery Boiler, Captive Power Generators, Water Treatment Plant and Compressors.

 

6        LAND

 

MFL has its manufacturing facilities on 329 acres of land at Manali, about 20 kms north of Chennai City. The land is free from encumbrances and the Company has clear title. The land is registered in the name of the company.

 

7        KEY STRENGTHS

 

·        MFL is one of the leading producers of complex fertilizers in India.

·        MFL is a dominant player in the south Indian market.

·        MFL enjoys a locational advantage, being situated close to the Chennai port and next to Andhra Pradesh, the largest fertilizer consuming State in India.

·        MFL has a well-established brand “Vijay” and an extensive marketing and distribution network spread throughout South India.

·        MFL provides an ideal platform for an expanded presence in complex fertilizers market.

 

8        FINANCIAL PERFORMANCE

 

The annual financial statements of the Company are prepared in accordance with Indian Generally Accepted Accounting Principles. The financial statements are audited by a qualified independent auditor and are then subject to a review by the Comptroller and Auditor General of India.

 

An abstract of the financial statements of MFL for the past three years is presented in the following tables:

 

Income Statement

 

Rs. Crores (1 Crore = 10 Million)	FY 2002	FY 2001	FY 2000
Sales	830	938	405
Consumer Price Support Subsidy	268	466	232
Other income	5	6	2
Total revenue	1103	1410	639
EBITDA	22	136	81
EBITDA margin	2%	10%	13%
Interest	112	130	56
Depreciation	46	42	20
Profit/ (Loss) after tax	(66)	(30)	6

Source: Annual reports

 Balance Sheet:

Rs. Crores(1 Crore = 10 Million)	FY 2002	FY 2001	FY 2000
Assets
Gross fixed assets	860	840	821
Less: Depreciation	263	218	177
Net fixed assets	597	622	644
Investments	2	2	2
Net current assets	94	237	202
Deferred revenue expenditure	58	69	80
Accumulated losses	150	84	54
Total assets	901	1014	982
Liabilities
Equity capital	162	162	162
Reserves	13	13	13
Cash credit	139	160	154
Other Secured loans	289	329	362
Unsecured loans	298	349	291
Total liabilities	901	1014	982

Source: Annual reports

Note: In the above statements above FY2000 refers to six months ending March 31, 2000. FY2002 figures are for 13 months ended April 30,2002

 

An abstract of the unaudited financial results up to December 2002 is presented in the following table:

  

Rs. Crores (1 Crore = 10 Million)	Year up to Dec 31, 2002  (Unaudited)
Net Sales/ Income from Operations	714.3
Other Income	1.7
Total Expenditure   a.      (Increase)/Decrease in stock in trade b.      Consumption of raw material c.       Staff cost d.      Power, Water & Fuel      e.    Other Expenditure	(15.3) 385.6 34.2 153.5 95.1
Interest	77.5
Depreciation	30.0
Profit/(Loss) before tax	(44.6)
Write-off of Interest  -         GOI -         NFL	- 22.4
Provision for taxation	-
Net Profit/(Loss)	(22.1)

Note: The above financial statement is for 8 months ended December 31, 2002.

 

 

  

ANNEXURE I 

 

 

GOVERNMENT OF INDIA

MINISTRY OF DISINVESTMENT

 

INVITATION FOR ‘EXPRESSION OF INTEREST’ FOR STRATEGIC SALE
OF SHAREHOLDING IN MADRAS FERTILIZERS LIMITED

 

This announcement is neither a prospectus nor an offer or invitation to the public for sale of securities.

 

Madras Fertilizers Limited (MFL) is primarily engaged in manufacturing and marketing of urea and NPK fertilizers and trading of imported Di-Ammonium Phosphate and Muriate of Potash. MFL has an aggregate annual capacity to produce 840,000 tonnes of NPK fertilizers and 486,750 tonnes of urea. MFL had a market share of 9.9%, 9.5% and 17.7% in N, P and K nutrients in South Indian market during FY2002. The present shareholding pattern of MFL is: Government of India (GoI) - 59.50%, National Iranian Oil Company (NIOC) - 25.77% and Public - 14.73%.

 

GoI had earlier invited EoIs for disinvestment of 32.74% shareholding in MFL in November 2000. In response, EoIs were received from a number of parties. Since then, GoI has notified the 7^th and 8^th pricing period policy parameters and announced the long term pricing policy for urea. Restructuring of the existing debt of MFL is also being considered. Given the above material changes in the prospective business and operating environment of MFL, GoI has decided to re-invite EoIs for sale of upto 33.50% of the equity in MFL to a Strategic Partner with transfer of management control. NIOC will sell its entire 25.77% equity in MFL to the same Strategic Partner along with the GoI. However, in the event the GoI decides to offer a part of its equity to the employees of MFL, the same will be out of the above 33.50% shareholding. Thus, the total equity on offer may be upto 59.27% of MFL's total equity.

 

Additional information, including the Preliminary Information Memorandum (PIM) can either be accessed at the websites www.divest.nic.in, www.fert.nic.in, www.madrasfert.com or can be obtained from ICICI Securities Limited, ICICI Bank Towers, NBCC Place Pragati Vihar, Bisham Pitamah Marg, New Delhi 110 003, India, Advisors to GoI. Incorporated entity(ies), either individually or as a consortium, may submit their Expression of Interest in the formats specified in the PIM to reach the designated official specified in the PIM before 17:30 Hours (IST) on 30^th June 2003.

 

Parties that had expressed their interest in the transaction in response to the earlier advertisement may send a letter to the Advisors confirming their continued interest in the transaction. 

 

 

 ANNEXURE II

 

 Ref: _________                                                                                 Date: _________

 

 

Sr. Vice President

ICICI Securities Limited

41/44 Minoo Desai Marg

Mumbai 400 005.

 

 

 

Sub: EXPRESSION OF INTEREST FOR STRATEGIC SALE OF UPTO 59.27% OF THE TOTAL VOTING EQUITY SHARE CAPITAL  IN MADRAS FERTILIZERS LIMITED (MFL)

We have read and understood the contents of Preliminary Information Memorandum (PIM) and the advertisement and wish to participate in the above disinvestment process and for this purpose:

We confirm that we/our consortium/proposed consortium* satisfy the eligibility criteria set out in the relevant sections of the PIM including the guidelines for qualification of bidders seeking to acquire stakes in Public Sector Enterprises through the process of disinvestment issued by the Government of India vide Department of Disinvestment OM No. 6/4/2001-DD-II dated 13^thJuly, 2001 and clarification issued on 10^th January 2002. The Statement of Legal Capacity and Request for Qualification as per formats, indicated hereinafter duly signed by us/respective members, who jointly satisfy the eligibility criteria, are enclosed.

 

 

Enclosure: 1.Statement of Legal Capacity

                  2. Request for Qualification

Ref: _________                                                                                Date: _________

 

Sr. Vice President

ICICI Securities Limited

41/44 Minoo Desai Marg

Mumbai 400 005.

Sub: EXPRESSION OF INTEREST FOR STRATEGIC SALE OF UPTO 59.27% OF THE TOTAL VOTING EQUITY SHARE CAPITAL IN MADRAS FERTILIZERS LIMITED (MFL)

 

 

Signatures of ______________(insert individual’s name) Attested

 

Attested

 

Authorised Signatory

 For and on behalf of (party/member)

 

Constitution (Check, where applicable)

·        Public Limited Company

·        Private Limited Company

·        Co-Operative Societies

·        Others, if any (please specify)

 

 If the interested party is a foreign company/ OCB, specify list of statutory approvals from GoI/ RBI/ FIPB applied for/ obtained/ required:

 

Sector            (Check, where applicable)

	Public Sector
	Joint Sector
	Private Sector
	Others, if any (please specify)

 

Further details:

 

Share holding pattern:

Role/ Interest of each Member in the Consortium (if applicable)

Nature of business/products dealt with:

Date and place of incorporation:

Date of commencement of business:

Full address including telephone numbers/fax:

Registered office:

Head office:

Address for correspondence:

 

 The Audited Balance Sheets and the Profit & Loss Accounts as approved by the Board of Directors for the last 3 financial years is attached. Also attached is a certificate from the chartered accountant/auditor certifying the Net Worth according to the latest audited financial statements as approved by the Board of Directors.

 

Please provide details of all contingent liabilities that, if materialized, would have or would reasonably be expected to have a material adverse affect on the business, operations (or results of operations), assets, liabilities and/or financial condition of the Company, or other similar business combination or transaction.

 

  Contact Person(s):

 

1.                              i)                                Name:

2.                              ii)                               Designation:

3.                              iii)                             Phone No.:

4.                              iv)                             Mobile No.:

5.                              v)                              Fax No.:

6.                              vi)                             Email:

Place:

Date:

 

ANNEXURE-V

 

No. 6/4/2001-DD-II

Government of India

Department of Disinvestment

Block 14, CGO Complex

New Delhi.

Dated 13^thJuly, 2001.

 

OFFICE MEMORANDUM

 

Subject: Guidelines for qualification of Bidders seeking to acquire stakes in Public Sector Enterprises through the process of disinvestment.

 

Government has examined the issue of framing comprehensive and transparent guidelines defining the criteria for bidders interested in PSE-disinvestment so that the parties selected through competitive bidding could inspire public confidence. Earlier, criteria like net worth, experience etc. used to be prescribed. Based on experience and in consultation with concerned departments, Government has decided to prescribe the following additional criteria for the qualification /disqualification of the parties seeking to acquire stakes in public sector enterprises through disinvestment: -

 

1.      (a)   In regard to matters other than the security and integrity of the country, any conviction by a Court of Law or indictment / adverse order by a regulatory authority that casts a doubt on the ability of the bidder to manage the public sector unit when it is disinvested, or which relates to a grave offence would constitute disqualification. Grave offence is defined to be of such a nature that it outrages the moral sense of the community. The decision in regard to the nature of the offence would be taken on case-to-case basis after considering the facts of the case and relevant legal principles, by the Government.

 

2.      (b)   In regard to matters relating to the security and integrity of the country, any charge-sheet by an agency of the Government / conviction by a Court of Law for an offence committed by the bidding party or by any sister concern of the bidding party would result in disqualification. The decision in regard to the relationship between the sister concerns would be taken, based on the relevant facts and after examining whether the two concerns are substantially controlled by the same person/persons.

 

3.      (c)   In both (a) and (b), disqualification shall continue for a period that Government deems appropriate.

 

4.      (d)   Any entity, which is disqualified from participating in the disinvestment process, would not be allowed to remain associated with it or get associated merely because it has preferred an appeal against the order based on which it has been disqualified. The mere pendency of appeal will have no effect on the disqualification.

 

5.      (e)   The disqualification criteria would come into effect immediately and would apply to all bidders for various disinvestment transactions, which have not been completed as yet.

 

6.      (f)     Before disqualifying a concern, a Show Cause Notice why it should not be disqualified would be issued to it and it would be given an opportunity to explain its position.

 

Henceforth, these criteria will be prescribed in the advertisements seeking Expression of Interest (EOI) from the interested parties. The interested parties would be required to provide the information on the above criteria, along with their Expressions of Interest (EOI). The bidders shall be required to provide with their EOI an undertaking to the effect that no investigation by a regulatory authority is pending against them. Incase any investigation is pending against the concern or its sister concern or against its CEO or any of its Directors/Managers/employees, full details of such investigation including the name of the investigating agency, the charge/offence for which the investigation has been launched, name and designation of persons against whom the investigation has been launched and other relevant information should be disclosed, to the satisfaction of the Government. For other criteria also, a similar undertaking shall be obtained along with EOI.

 

(A.K.Tewari)

 

Under Secretary to the Government of India.

 

NOTE:

 

The following would be treated as grave offence:

 

(i)                 Only those orders of SEBI are to be treated as coming under the category of “grave offences” which directly relate to “fraud” as defined in the SEBI Act and/or regulations.

(ii)              Only those orders of SEBI that cast a doubt on the ability of the bidder to manage the public sector unit when it is disinvested, are to be treated as adverse.

(iii)            Any conviction by a Court of Law.

(iv)            In cases in which SEBI also passes a prosecution order, disqualification of the bidder should arise only on conviction by the Court of Law.

 

ANNEXURE-VI

 

Guidelines for management-employee bids

No. 4/38/2002/DD-II

Government of India

Ministry of Disinvestment

Block No.14, CGO Complex,

Lodi Road, New Delhi.

Dated: 25^th April, 2003

 

OFFICE MEMORANDUM

Subject:- Guidelines for management-employee bids in strategic sale.

Employee participation and protection of employee interests is a key concern of the disinvestment process.   The practice of reserving a portion of the equity to be disinvested for allocation to employees, at concessional prices, has been adopted in a number of cases.  It is necessary and expedient to evolve and lay down guidelines to encourage and facilitate management-employee participation in the strategic sales and thus to acquire controlling stakes and manage disinvested public sector undertakings.  The undersigned is directed to state that Government has, therefore, decided to lay down the following guidelines for evaluating employee/management bids:-

 

(i)     The term ‘employee’ will include all permanent employees of a PSU and the whole time directors on the board of the PSU.  A bid submitted by employees or a body of employees will be called an “employee bid”.

 

(ii)    At least 15% of the total number of the employees in a PSU or 200 employees, which ever is lower, should participate in the bid.

 

(iii)   An employee bid would be exempted from any minimum turn over criterion but will be required to qualify in terms of the prescribed net worth criterion.  They will be required to follow the procedures prescribed for participation by Interested Parties in the process of strategic sale including, but not limited to, filing the expression of interest along with all details, as applicable to other investors, furnishing of bank guarantee for payment of the purchase price etc.

 

(iv)   Employees can either bid directly and independently or, for the purpose of meeting the financial criteria like net worth, can form a consortium or bid through a joint venture (JV) or a special purpose vehicle (SPV), alongwith a bank, venture capitalist or a financial institution.  However employees will not be permitted to form consortia with other companies.

 

(v)    If the bidding entity of the employees is a consortium, JV or SPV, employees must have a controlling stake and be in control of the bidding entity.

 

(vi)   If the bid is submitted through a consortium, JV or SPV, employees must contribute at least 10% of the financial bid.

 

(vii)  If the employees form a consortium, the consortium partners would be prohibited from submitting individual bids independently. 

 

(viii) If it is not the highest bid, the employee bid shall be considered only if the said bid is within 10% of the highest bid.

 

(ix)   The employee bid shall, subject to fulfilling the conditions above, have the first option for acquiring the shares under offer provided they match the highest bid and the highest bid being equal to or more than the reserve price.

 

(x)    If the employee bid is not the highest bid and there are more than one employee bids within the 10% band, the highest of the employee bids will have precedence for purchase at the highest bid.  If such employee bidder is unwilling or unable to match the highest bid, the option will pass on to the next highest employee bid and so on till all the employee bids, within the 10% band, are exhausted.

 

(xi)   In the event of no employee bidder, within the 10% band, being willing or able to match the highest bid, the shares under offer will be sold to the highest bidding entity.

 

(xii)  There will be a lock in period of three years for the shares disinvested by the Government.

 

2.         All the bidders for the management-employee buy-outs will also have to satisfy the provisions of the ‘Guidelines for qualification of bidders seeking to acquire stakes in Public sector Enterprise through the process of disinvestment’ issued vide the then Department of  Disinvestment’s Office Memorandum No.6/4/2001-DD-II dated 13^th July 2001 or as amended subsequently along with other qualification criterion as generally applicable and not specifically excluded herein.

 

                                  -sd-

(T.S. Krishnamachari)

Deputy Secretary to the Government of India