Ahmedabad: Gujarat government-owned oil and gas company Gujarat State Petroleum Corp. Ltd (GSPC) on Wednesday signed an agreement to buy a 65.12 % stake in Gujarat Gas Co. Ltd (GGCL) from London-based BG Group Plc. for Rs.2,463.8 crore, according to two senior company officials involved in the deal.
BG Group will make a hefty profit from this deal as in 1997 the group had bought the stake in GGCL from the state government and Mafatlal group for about Rs.170 crore.
GSPC was earlier planning to jointly bid for this stake along with Oil and Natural Gas Corp. Ltd (ONGC), Bharat Petroleum Corp. Ltd (BPCL) and Oil India Ltd, ONGC chairman Sudhir Vasudeva had said in an interview in April. GSPC was to hold 50% equity in the proposed joint venture.
“This didn’t happen. Some partners found the pricing a bit high and so GSPC decided to go alone. It would be a business expansion of their existing business,” said a senior government official who did not want to be identified.
The stake is being acquired by Gujarat Distribution Networks Ltd, a company wholly owned by GSPC, at Rs.295 per share, according to Tapan Ray, managing director, GSPC group. GGCL dropped 2.15% on Wednesday to close at Rs.336.70 apiece.
BG Group had announced its decision to exit BG’s shareholding in November 2011.
GSPC Gas, a GSPC group company, is the largest city gas distributor in India with gas sales of 4.3 million standard cubic metres per day (mscmd). GGCL is the largest player in the private sector with 3.3 million mscmd gas sale.
GSPC Gas is also looking at the option of a public issue, said another government official. Ray said the acquisition is in the long-term interest of the industrial and retail customers of Gujarat.
In addition, the acquisition is in conformity with the company’s stated strategic objective of expanding its presence in upstream and downstream segments of the energy value chain and realising the vision of developing Gujarat as a natural gas driven economy.
GGPL, which has a network of close to 3.50 lakh natural gas consumers in south Gujarat, distributes gas to about 360,000 industrial, commercial and domestic customers through its pipeline network and compressed natural gas (CNG) to over 181,600 vehicles through 46 retail outlets.
In September, GSPC raised Rs.3,000 crore of debt and the money will be used for the acquisition, a senior company official said. The bond issue was subscribed more than three times. The acquisition, subject to regulatory approvals, is expected to close after the completion of an open offer. Under the capital market regulator’s takeover code, when an entity buys 25% or more stake in a company, an open offer is mandatory.
In September last year, GSPC entered into a long-term gas supply agreement with BG Group for the supply of 2.5 million tonnes per annum of liquefied natural gas (LNG) to GSPC for 20 years, beginning 2014. The company is also exploring various locations in Gujarat for setting up LNG terminals to source natural gas.
In June this year, Russian oil and gas major Gazprom Global LNG, through its Singapore affiliate Gazprom Marketing and Trading Singapore, had signed an agreement for long-term supply of LNG to GSPC for 2.5 million tonnes per annum. While prices are not negotiated as yet, the supply is expected to start from 2016 for 25 years.