Chemplast Sanmar Ltd

@shreyasnevatia – So, read Chemplast Sanmar DRHP and had several concerns and questions. Anlysis of the DRHP and associated questions below:

1. In 2019, S-PVC business was demerged from Chemplast Sanmar Limited into Chemplast Cuddalore Vinyls Limited (“CVVL”). The ownership of the demerged entity went to Sanmar Engineering Services Limited (an entity owned by the Promoters + FIH Mauritius (assuming Fairfax)). Reason – to run commodity and specialty business separately. (page 165 of DRHP)
2. In 2021, the same CVVL was then acquired by Chemplast Sanmar by paying Rs. 300 Crores to make it a WOS. (page 166 of DRHP)
3. Now, Sanmar Engineering had taken a loan of Rs. 1220 Crores from HDFC Limited by pledging shares of CVVL. Now, 100% of shares held by Chemplast Sanmar in CVVL is pledged to HDFC Bank Limited for a loan of Rs. 1220 Crores availed by Sanmar Engineering Services Limited. (page 48, point 29 of DRHP)
   Query – has this pledge been removed? Is it being disclosed?
4. In Dec 2019 – Chemplast Sanmar raised Rs. 1270 Crores by issuing NCDs for the following purposes: (Page 91 of DRHP)
   (i) Repayment of Rs. 69.5 Crore borrowings (not sure who the lender was!)
   (ii) Investment of Rs. 482.2 Crores in Sanmar Group International Limited (owned 100% by Sanmar Holdings Limited)
   (iii) Funding of DSRA for Rs. 55.4 Crores (So, they were unable to even service the debt at this stage and they borrowed at 17.5% to do this!)
   (iv) Repayment of advance to Sanmar Holdings Limited of 637.5 Crores (owned 100% by SESL)
   Note – SESL ownership above.

Effectively, Sanmar Chemplast issued NCDs of Rs. 1270 Crores and appears to have paid Rs. 1119.7 Crores to Promoter entities!
**So payment to promoter entities through Sanmar Chemplast by Dec 2019 seems to be **
– Rs. 1119.7 Crores + 300 Crores = Rs. 1419.7 Crores

5. The IPO

• NAV per share at IPO time is of Rs. Minus 139.15 (page 97 of DRHP)
• IPO is for Rs. Rs. 2550 Offer for Sale and Rs. 1300 Fresh Equity for repayment of NCDs.
  (Wait, wasn’t the NCDs itself largely to make payments to the Promoter entities?)
  Now after IPO, Promoter’s have earned
  **- Rs. 1419.7 Crores + Rs. 2550 Crores = Rs. 3,669 Crores **
  (Demerger & acquisition 300 + NCD 1119.7 + OFS 2550)

After IPO the debt has now zoomed to Rs. 925 Crores from nearly 80 in March 2020. For the CAPEX of course!

6. Now for TCI Sanmar Chemicals SAE – Egypt
   Sanmar Holdings owns 99% of this company which as on March 2020 had a NAV of Rs. – 2494 Crores (Negative 2494 Crores) and had made large losses from 2018 to 2020 (page 194 DRHP)
   Promoter guarantee given to secure the loans to this entity is to the order of USD 1.9 Billion + (say Rs. 14,000 Crores approx)
   Has this been released or is there a chance this promoter guarantee could be invoked? And will it be promoter shares in Chemplast Sanmar or do they have other assets to cover the guarantee?

7. Credit Rating
   Lastly, the Credit Rating was changed from Negative to Stable by Brickworks rating prior to the IPO.
   SEBI has banned Brickwork ratings I think in 2021!

I kind of didnt read beyond the DRHP. So, if the pledges and guarantees are disclosed on a continuous basis – then investors can take a well informed decision! If not!!!