MUMBAI: Chennai-based chemicals maker Chemplast Sanmar plans to sell a minority stake to private equity funds or strategic investors to raise about Rs 1,200 crore, three people aware of the development said.

The Sanmar group-owned maker of polyvinyl chloride (PVC) resins, caustic soda, chlorochemicals, refrigerant gas and industrial salts is working on a plan to trim debt, which stood at about Rs 700 crore as on March 31, 2012. The company had delisted from the stock exchanges a year ago.

“The deal is at a very nascent stage,” one of the persons said, adding that the company has appointed investment bank NM Rothschild to scout for investors.

Chemplast Sanmar’s chairman PS Jayaraman did not respond to ET’s emailed query on the development. Another investment banker with knowledge of the deal said, “There is a lot of scope in the chemicals and speciality chemicals business. Though the group has had liquidity problems, the outlook for the sector remains positive. The company has approached a couple of distressed asset funds operating in India.”

Large debt, steep losses, higher gearing ratio and promoters’ plan to invest more had led to the company delisting from the NSE and the BSE — the country’s two main stock exchanges — and the Madras Stock Exchange. “Chemplast needs capital infusion to correct the gearing and liquidity issues, which the promoters are willing to support,” the company had told its shareholders at the time of the delisting.

As on March 31, 2011, the company had a net worth of Rs 174 crore and a debt to equity ratio of around 6:1. “It needs to be seen whether the company will merge its other chemicals business under one roof and then offer stake to investors,” the second investment banker said. “Now the speciality chemicals business operations are independent.”

Chemplast’s four facilities in southern India can produce a total of 292,000 tonnes of PVC a year. PVC is used for making plastic products. The company competes with Tata Chemicals, Aditya Birla Chemicals, Gujarat Alkalies & Chemicals and Sree Rayalaseema Alkalies & Chemicals. India’s chemical industry is projected to grow more than two-and-a-half times to $290 billion by 2017, from $110 billion in 2011, according to the India Brand Equity Foundation.

“A lot of end use applications for such products is picking up in India. With the manufacturing of such materials shifting base to Asian countries, we expect strategic interest for such assets to increase,” said Preet Mohan Singh, executive director and head industrials at Avendus Capital, a leading domestic investment bank. “For strategic investors, rather than building manufacturing from scratch, acquiring assets is an attractive strategy to enter the Indian market.” Singh, however, refused comment on the Chemplast deal.