Haldia Petrochemicals has decided to go in for an initial public offer by May this year as well as apply for permission to raise funds overseas.

The two steps will improve the company's debt-equity ratio as demanded by its creditors. It is looking at offering around Rs 400 crore (Rs 4 billion) of new shares.

At a meeting on Monday, the company and its lenders agreed to seek permission from the finance ministry to replace its costly local debt with cheaper foreign loans.

The meeting also finalised the role to be played by Gail, but there was no mention of Indian Oil Corporation.

Haldia Petrochemicals has over Rs 4,500 crore (Rs 45 billion) debt at an average interest rate of 14.5 per cent.

The company's case has been taken up by the corporate debt restructuring forum, which is expected to finalise a package within a week.

The core group of the forum today held a meeting with Haldia Petrochemicals' promoters in Mumbai.

The lenders, led by Industrial Development Bank of India, are likely to settle for a Rs 600 crore (Rs 6 billion) fresh capital infusion in the company.

While Gail was ready to bring in Rs 200 crore (Rs 2 billion), the rest needed to be raised by the promoters, mainly The Chatterjee Group, government sources said.

Sources said The Chatterjee Group was expected to arrange for underwriting of the issue. This means the company will have to buy out the unsubscribed portion of the IPO, if any.

The other promoters of Haldia Petrochemicals, the West Bengal government and Tata Sons will not bring in any fresh capital.

HPL Chairman Tarun Das could not be reached for comments. The company has been in red since it went commercial in August 2001 mainly due to high interest outgo.

The interest rate is expected to be lowered to between 10-11 per cent. However, this rate is high in today's soft interest rate regime.

"We still feel the interest rate can be brought down. We will apply to MoF for swapping rupee debt with single digit foreign currency debt," sources said.

The company has cleared its due to financial institutions upto June 30, 2002. Lenders were likely to give offer a breather in retrospective effect from April 1, 2003.