New Delhi: After GAIL, IOC and BPCL, the board of state-owned Oil and Natural Gas Corp (ONGC) has approved acquisition of Asian Development Bank’s (ADB) stake in Petronet LNG Ltd.
ADB had on 23 August offered to sell its 5.2% stake in Petronet, in which the four state-owned oil and gas companies hold 12.5% stake each, sources privy to the development said.
Gas utility GAIL and refiners Indian Oil Corp (IOC) and Bharat Petroleum have already informed ADB of their decision to exercise their Right of First Purchase/Refusal on the multilateral lending agencies stake.
ONGC board on 4 November approved the share acquisition, the sources said, adding that the four the state-owned firms would need government approval for buying ADB stake.
A file photo of an ONGC offshore platform
Gaz de France International (GDFI) holds 10% in PLL and also has first right over ADB stake. In case the French energy giants too decides to exercise its right, ADB’s 5.2% stake will split between the five in proportion to their current shareholding.
While Indian state firms would get 1.08% or 81.25 lakh shares each, GDFI would be eligible to 0.867%.
Sources said GDFI is unlikely to exercise its rights and if that happens, ADB’s 5.2% stake will be split equally among the four promoters.
The price payable to ADB would the lower of either the average of the weekly high and low of the closing price of PLL during six months preceding the date of purchase, or the average of the weekly high and low of the closing price of PLL during the last two weeks preceding the date of purchase.
For 81.25 lakh shares, the consideration works out to about Rs 120 crore, sources said adding the promoters, as per the new takeover code, would have to make an open offer for acquiring a further 26 per cent stake from minority shareholders if they buy the shares in one transaction.
A staggered purchase may not trigger the open offer requirement.
Sources said the PLL’s constitution states that participation of PSUs would be to the extent of 50% and the joint venture company would not be a government company.
However, legal opinion taken by the promoters states that PLL would not be considered as a government company, following an acquisition of additional equity by the PSUs from ADB.
This is because neither of the conditions specified in Section 617 of the Companies Act would be met in case of PLL. The conditions are at least 50% of the paid up capital of PLL should be held by central government or by one or more state governments; or PLL should be a subsidiary of a government company.
The immediate fallout of the acquisition would be that PLL would come under purview of government agencies like CAG, they said.
The state-run firms have argued that the acquisition of shares offered by ADB will result in securing controlling interests in PLL. As PLL has got long-term plans to increase its capacity in more locations additional investments in PLL will help the promoters in growth of gas business.
Also, on their initial investment of Rs 99.37 crore, the promoters have been rewarded by dividend of Rs 77.3 crore till date. Besides, the investment has appreciated many folds from Rs 99.37 crore to Rs 1,500 crore at current market prices.
Sources said the promoters had 60 days from receipt of notice of share sale from ADB to communicate their acceptance of the offer. The ADB communique was received on 14 September.
If the promoters had failed to convey the acceptance or waive their right of first purchase/refusal, ADB would have been free to sell its equity to a third party at a price and on terms not more favourable than contained in the offer.
As per the terms of offer by ADB, the promoters would be required to execute a sale purchase agreement and make payment of the entire purchase consideration with 30 days from the date of acceptance of the offer or receipt of necessary government approvals, whichever is later.
There was a possibility that in case the promoters decided to waive their right of first purchase, the entire equity stake being divested by ADB may be acquired by GDFI, thereby increasing its equity stake to 15.20% and making GDFI the single largest shareholder in PLL.
An ADB spokesperson had previously stated that “ADB has held a 5.2% stake in PLL since 2004. ADB always looks to exit its equity investments once it believes that the development mission has been accomplished.”
ADB had in fact first proposed to exit PLL in 2008 but the then company CEO Prosad Dasgupta was in favour of a third party like Chevron or the steel baron Lakshmi Mittal’s group buying the stake instead of the four promoters.
Sources said Dasgupta had on 29 February in that year written to the then GAIL chairman U D Choubey to say that sale of “even one share” held by ADB to the four promoters or Gaz de France (GdF) would trigger the takeover code, turn the joint venture into a state-run firm and may result in delisting from the bourses.
ADB and German Development Bank KfW had in 2008 approved a loan of $169 million to Petronet for its expansion projects at Dahej and new terminal at Kochi, but the multilateral lending agency’s internal norms prohibit it from having both debt and equity exposure in a company.
“In 2004, ADB had sanctioned $75 million loan to Petronet. But once it took 5.2% stake for less than $8 million, ADB could not disburse the balance due to its internal regulations,” a source said.
ADB norms also stipulate it to divest its equity holding in a company three years from the date of the company going public. Petronet’s IPO came in 2004 and ADB was supposed to exit Petronet in 2007, but was persuaded to stay on.