Mahanagar Gas and its merchant bankers are looking at a timeline of 20-22 June for the IPO, with the anchor book placement on 17 June
Mumbai: City gas distributor Mahanagar Gas Ltd (MGL), a joint venture between state-owned GAIL (India) Ltd and Royal Dutch Shell Plc, is planning to sell shares to the public for the first time in the third week of June, according to two people aware of the development.
MGL is the sole authorized distributor of compressed natural gas (CNG) and piped natural gas (PNG) in Mumbai, its adjoining areas, and Raigad district in Maharashtra. CNG is used in motor vehicles and PNG for domestic household, commercial and industrial use.
The company and its merchant bankers are looking at a timeline of 20-22 June for the initial public offer (IPO), with the anchor book placement on 17 June, said the first person cited above, requesting anonymity, as he is not authorized to speak to the media.
The anchor book is that portion of the IPO which bankers allot to institutional investors on a discretionary basis. Anchor book subscription typically opens a day ahead of the IPO.
The IPO, a pure offer-for-sale by the company’s promoters GAIL and Shell (through BG Asia Holdings Pte. Ltd), will see the two sell 12.5% stake each, he said, adding that the share sale is expected to fetch a total of around ₹ 1,200 crore.
The share sale values the company at around ₹ 4,800 crore. MGL is not raising any capital for its business.
GAIL and BG Asia own 49.75% in Mahanagar Gas, which was incorporated in 1995. BG Asia is based in Singapore and is a part of the BG Group (British Gas), an international exploration and production and LNG company. Royal Dutch Shell acquired BG Group in February.
The 25% stake sale by MGL will make the company compliant with the Securities and Exchange Board of India’s (Sebi) minimum public shareholding norms. In October 2014, Sebi had mandated all listed public sector undertakings (PSUs), excluding public sector banks (PSBs), to raise public shareholding to a minimum 25% by August 2017. For state-owned companies looking to list after October 2014, the market watchdog allowed three years’ time from the date of listing.
“For IPO, we are guided by our BRLMs (book running lead managers) and legal counsel and we cannot offer any comment to your queries," said an MGL spokesperson in an email response.
According to the second person cited above, the company has completed its investor roadshows and is ready to launch the IPO once certain formalities are completed.
“Bankers have presented the timeline to the management and they are in sync with it. They are now working on getting the sign-off from the selling shareholders—GAIL and Shell. Since you have a government partner involved, there are several formalities that need to be taken care of and they are being taken care of as of now," he said.
MGL reported a revenue of ₹ 2,135 crore in 2014-15, up from ₹ 1,885 crore in the previous year. Profit grew marginally to ₹ 301 crore in 2014-15, from ₹ 297 crore in the previous year. As of 30 June 2015, MGL had 180 CNG filling stations.
For 2014-15, CNG and PNG businesses accounted for 65.1% and 34.9%, respectively, of MGL’s total gas sales revenue.
MGL has hired Kotak Mahindra Capital Co. Ltd and Citigroup Global Markets India Pvt. Ltd to manage the share sale.
So far this year, 10 companies have raised ₹ 6,743 crore through the IPO route, while last year 21 companies raised ₹ 13,614 crore, according to data from primary market tracker Prime Database.
“The prospects for city gas distribution firms have seen improvement in the recent past because of several favourable policy and regulatory developments such as domestic gas allocation and ban on heavy diesel passenger vehicles in some geographies. Also on the LPG side, there have been several changes such as direct subsidy to consumers, clampdown on fake LPG subscribers and diversion of domestic LPG to commercial LPG, all of which have helped the business of city gas distributors," said K. Ravichandran, senior vice-president, co-head, corporate sector ratings, ICRA Ltd
The pricing of CNG is very competitive compared to petrol/diesel making the payback period very attractive, which has resulted in significant voluntary conversions to CNG, he added.