Gail India and Haldia Petrochemicals Ltd have entered into a production-cum-swap marketing deal which has potential to generate business worth Rs 864 crore (Rs 8.64 billion) for the later in six years.

The companies also agreed to co-operate in areas of information technology, and research and development in the future.

The companies signed a memorandum of understanding involving these aspects on Tuesday.

The MoU also includes Gail's expression of interest to buy into HPL as an equity partner in the future, subject to due diligence and financial restructuring.

HPL had been pursuing the swap marketing and production deal in the last quarter. The company proposes to securitise the deal and raise Rs 300 crore (Rs 3 billion) to retire high cost debt and improve the lopsided debt-equity ratio.

HPL has mandated Lazard Capital for the securitisation deal. HPL had agreed to infuse Rs 500 crore (Rs 5 billion) by November 30, 2002, to secure a comprehensive debt restructuring from lenders.

It was hoping to raise Rs 200 crore (Rs 2 billion) by issuing fresh shares to Gail and generate another Rs 300 crore (Rs 3 billion) from the marketing deal.

However, HPL could not live up to that commitment and only Rs 300 crore could be available only late January.

The company would apprise the institutions about the marketing deal soon. The deal was signed on the day when interest on term falls due for four quarters.

Under the deal, HPL would sell 35,000 tonne of polypropylene each year to GAIL generating business worth Rs 144 crore (Rs 1.44 billion) every year.

HPL in turn would buy 7,000 tonne of propylene and 35,000 tonne of pentane (a substitute for naphtha) each year. Moreover, both the companies would produce 40,000 tonne polyethylene for each other.

While HPL would cater to GAIL customers in the eastern part of the country, the gas marketing to petrochemical major would service HPL customers in north.