As the legal tussle between Lanco and Perdaman heat up, Lanco today extended an invitation to discuss and settle the matter out of court. Perdaman however has turned down the offer. "Lanco has to give guarantee of coal supply,” Andreas Walewski, director (corporate), Perdaman Chemicals tells CNBC-TV18.
As the legal tussle between Lanco and Perdaman heat up, Lanco today extended an invitation to discuss and settle the matter out of court. “The option was always there, but Perdaman wanted to take the legal route,” J Suresh Kumar, chief financial officer of Lanco Group told CNBC-TV18.
Perdaman however has turned down the offer and says that it is far too late for an out of court settlement of the issue now. Perdaman had dragged Lanco to court demanding damages of nearly USD 3.4 billion, accusing Lanco of violating the coal supply pact that the company had with Griffin Coal before Lanco acquired the mines.
Also check out: Will come clean in legal tussle with Perdaman: Lanco
“Lanco has to give guarantee of coal supply,” Andreas Walewski, director (corporate), Perdaman Chemicals tells CNBC-TV18. “We have already spent AUD 2 million on urea project so far that uses coal that we used to get from Griffin,” he says.
Walewski confirmed that the Australian Supreme Court has expedited the case.
Below is the edited transcript of the interview. Also watch the accompanying video.
Q: What according to you is the current status of the case and do you think an out of court settlement could be done at this point?
A: You can never rule out an out of court settlement. In many cases, an out of court settlement is preferable. No one really wants to go to court unless they have no other option.
The position unfortunately is that the key reason why out of court settlement at the moment cannot happen is that under the coal supply agreement, Griffin and Lanco have to give us security of supply. They have to guarantee that they will always deliver the coal, and that guarantee has to be to the satisfaction of our lenders.
As you would appreciate as you put USD 3.5 billion into a project, you want to make sure you get your feedstock. And Griffin refused to sign the relevant agreement and security documents, and they still refuse to provide the lenders and Perdaman with the security that we require. As long as that is Lanco’s provision, then obviously, an out of court settlement can’t happen.
Q: What is the quantum of damage towards Lanco at this point, and the next hearing is to take place in April, up until then what do the sequence of events look like?
A: Firstly, we are claiming the direct losses, we spent close to 200 million dollars on the project, so that is cash that has gone out, but obviously, if we cannot go ahead with the project because of Lanco’s conduct, then that is what we are claiming. We are also claiming in addition the value of the lost project. We have had experts look at the net present value of the future cash flows which we would have derived from the project, and that number comes to around USD 3.3-3.4 billion. So if the project is completely lost because of Lanco, then this is our claim.
Q: Typically, how long to cases like this take to get settled in the Australian Supreme Court?
A: Here in Western Australia, things move quite quickly. We are fortunate that we have a Chief Justice managing the case. He has put the case on the expedite list because it is of significant value and importance to Western Australia, therefore it is being processed very quickly with incredible speed. In fact both parties now have to keep up with the pace of developments. So we are in the discovery phase where we are discovering documents from relevant parties and we are now starting to prop our witnesses, and the matter is expected to go to trial in April-May 2012. So by the middle of next year, we will probably have a judgment.
Q: You filed the case in June and hearing is in April, that doesn’t sound like a speed process or a fast process?
A: I think its all relative. For a case that involves such large crime and lots of documents, this is very quick.
Q: So you expect resolution by when?
A: By middle of next year. You have to also understand that Lanco is trying to slow things down, so that is why it is taking little bit longer maybe. But despite their attempts to slow things down, we expect things to be resolved if it goes to trial by middle of next year.
Q: Because of this delay what would the impact be on Perdaman achieving financial closure on the urea project, and secondly, is Lanco allowed to sell coal from Griffin in the mean time?
A: The answer to the second question is yes, Lanco is allowed to sell coal. However, it can only sell coal on its existing contracts. The contract with us, it has to reserve certain quantity of coal for our project, so that coal it cannot sell. And further more, we have put what we called a freezing on Griffin’s assets. So Griffin cannot charge its assets in the coal as security for any borrowings from ICICI Bank. So that protects us.
If we resolve the matter, the coal for our project should be there and cannot be sold to others. In terms of costs, if prices go up, we have agreements with the unions, labour rates go up every year… so if we were to start a project next year, the cost would have gone up and that is something we have pointed out to Lanco.
Lanco Infratech stock price
On December 19, 2014, Lanco Infratech closed at Rs 5.64, down Rs 0.28, or 4.73 percent. The 52-week high of the share was Rs 14.94 and the 52-week low was Rs 5.31.
The latest book value of the company is Rs 11.11 per share. At current value, the price-to-book value of the company was 0.51.
READ MORE ON Lanco, Perdaman, Griffin Coal, coal supply pact, coal mines, court, legal settlement, security,
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