To pare its debt and pay off liabilities, state promoted Gujarat State Petroleum Corporation Ltd (GSPC) will transfer ₹6,000 crore worth of non-convertible debentures to sister concern Gujarat State Investment Ltd (GSIL), according to an arrangement reached by the two companies and accessed by Mint.
As part of the arrangement, which provides for the assignment of obligations, GSPC will issue equity shares to GSIL resulting in the latter becoming the holding company of GSPC.
GSIL holds investments of government of Gujarat in various state sector entities. The company is an unregistered core investment company and engaged in the business of investment generally.
The issue of the non-convertible debenture will almost halve GSPC’s debt to ₹7,500 crore from ₹13,500 crore as of now.
The non-convertible debentures of GSPC issued on a private placement basis are listed on the National Stock Exchange. The government of Gujarat holds 86.8% stake in GSPC.
“This will result in administrative synergies, simplification, focused management, streamlining and optimization of the group structure and efficient administration for the ultimate shareholders (government of Gujarat acting through the governor of the state of Gujarat) of both the companies. The assignment of obligations by the transferor company will improve the leverage debt to equity ratio of GSPC," the scheme of arrangement said.
GSPC in an emailed response said, “Being a state unit, we will not be able to comment given that the election model code of conduct is in place and the subject matter relates to a proposed commercial transaction between two government companies." GSIL did not reply to an email sent on April 10.
The scheme of arrangement added that the proposed transaction will improve the debt to equity ratio of GSPC.
“The transaction is also expected to enhance the tradeability of the non-convertible debentures in the secondary market due to the better credit rating of the GSIL debentures to be issued to existing shareholders," said the arrangement document.
A GSPC official said, with the support of the state government, GSIL will service the NCDs, which are slated to mature over the next few years.
The transaction is expected to bring down GSPC’s annual interest cost to ₹600 crore.
Over the past few years, GSPC has been struggling to bring down its debt. The company, after spending close to ₹23,000 crore on its Krishna Godavari basin project, sold 80% stake in the project to state-run Oil and Natural Gas Corporation for ₹7,738 crore in March 2017.
Last March, GSPC sold its 28.40% stake in Gujarat Gas to subsidiary GSPL for ₹3,200 crore. Funds from both transactions helped GSPC bring down its debt from ₹24,500 crore to ₹13,500 crore.