Mumbai: Gujarat State Petroleum Corp. Ltd (GSPC) has decided to sell a 28.4% stake in Gujarat Gas Ltd, its city gas distribution business, to its subsidiary Gujarat State Petronet Ltd (GSPL).

With this transaction, the Gujarat government-owned GSPC is expected to reduce its Rs16,500 crore debt by over Rs3,250 crore. Both Gujarat Gas and GSPL are subsidiaries of GSPC.

“The board of directors has approved the acquisition of up to 28.40% of the paid-up equity share capital of Gujarat Gas from GSPC, by way of an inter-se transfer. This approval is subject to conditions precedent in the share purchase agreement as may be executed between the company and GSPC," said GSPL in a filing to BSE.

GSPC had invested $3.5 billion (approximately Rs20,000 crore) in the Deen Dayal block in offshore Krishna Godavari (KG) basin, which had saddled the company with debt.

Last year, state-run Oil and Natural Gas Corp. Ltd (ONGC) agreed to pay $1.2 billion to GSPC for the purchase of its 80% stake in Deen Dayal block.

“The proposed transaction would bring better business synergies between businesses of GSPL and Gujarat Gas. It would help in achieving economies of scale and enable faster roll-out of city gas distribution networks," GSPL said in the filing.

GSPL shares closed 4.93% down at Rs177.45 on BSE on Tuesday, while the benchmark Sensex closed up 0.22% at 32,996.76 points.