Court in India Delays Carbide Restructuring : Orders Firm to Halt Program Until Nov. 26

NEW YORK — Union Carbide’s ambitious plan to cut its annual interest expense by about $120 million was temporarily derailed Monday when a court in Bhopal, India, ordered the troubled chemical company to delay its recapitalization program and stop selling assets until at least Nov. 26.

The company, struggling in the aftermath of the poison gas disaster that killed more than 2,000 people in Bhopal two years ago, lambasted the Indian government’s action as “a mockery of the due process of law” and a weak attempt to block Carbide’s “strong defenses against liability for the Bhopal tragedy.”

But Carbide expressed confidence that the matter will be resolved before year-end, a critical point since the new tax laws would decrease Carbide’s expected savings by about $70 million.

The Bhopal district court, which will decide Carbide’s liability for the December, 1984, disaster, said Monday that it will hear on Nov. 26 a request by the government of India to permanently stop Carbide’s recapitalization plan. Attorneys for the Indian government argue that if Carbide goes through with its planned sale of assets and its recapitalization plan, it won’t have the money to pay the claims of victims and their families.

Summary of Defense Filed

The court order coincided with Carbide’s filing with the same court of a 160-page summary of its defenses against liability for the Bhopal tragedy. Carbide contends that it now has conclusive proof that its Bhopal plant was sabotaged. It also accuses the government of India of intentionally restricting Carbide’s involvement with its Bhopal subsidiary.

The company has been sounding those basic themes as the cornerstone of its defense for months. But Carbide said Monday’s court filings contain detailed proof that someone deliberately introduced “substantial quantities of water” into a Carbide storage tank containing poison gas.

Meantime, analysts who follow Union Carbide characterized the court’s delay of the recapitalization plan as illogical.

It is unclear whether Carbide now has enough money to pay the expected claims, several analysts said. But it is certain, said James H. Wilbur, an analyst with Smith Barney, Harris Upham & Co., that “the company will be sounder under its proposed arrangement than it was before.”

Carbide agreed several weeks ago to abide by rulings of the India court.

Central to the company’s refinancing plan is a proposal to buy back the $2.5 billion in debt securities it issued earlier this year to rebuff a takeover bid by GAF Corp. Those bonds carry an overall annual interest rate of 14.2%, which is considered too high in light of today’s lower interest rates and Carbide’s current creditworthiness.

Carbide had planned to offer a premium to bondholders of as much as 33% over the face value of the bonds in order to persuade the holders to turn them in. That promised premium is worth about $480 million to bondholders after taxes.

But if Monday’s court action delays completion of the bond offer beyond Dec. 31, analysts said Union Carbide will be forced to pay bondholders as much as $70 million more than planned. That is because the new federal tax law eliminates preferential tax rates for capital gains and would result in higher taxes on the profits than most bondholders will earn from the offer. So, to make it worthwhile for the holders to turn in the bonds, Carbide would have to compensate for the higher top tax rate--which rises next year to 28% from 20%.