GSPC-led consortium may sweeten bid for BGs stake in Gujarat Gas

Written by MG Arun | Mumbai | Updated: Jul 12 2012, 07:11am hrs
The consortium comprising Gujarat State Petroleum Corporation (GSPC), Oil and Natural Gas Corporation (ONGC), Bharat Petroleum (BPCL) and Oil India (OIL) is likely to sweeten its bid for British Gas (BG) 65.12% stake in the Rs. 2,500-crore Gujarat Gas Company, ending months of impasse over the valuation of Indias largest private sector city gas distributor.

If it makes sense for us, we will revise the bid, said Sudhir Vasudeva, CMD, ONGC. We are PSUs (public sector units), we are bound by regulations, we cannot go and bid any amount, he added, making it clear that the sale price has to be reasonable. The consortium is the only buyer in the race for Gujarat Gas, adding pressure on BG to reach a settlement on the price soon.

The BG Group, which had acquired the 65.12% stake in Gujarat Gas from the government of Gujarat, Mafatlal Group and retail investors for close to R225 crore in 1997, announced its plans to exit from city gas distribution business in November last year. The government-run firms, led by GSPC, then formed a consortium to bid for BGs stake.

GSPC holds 50% stake in the consortium, with ONGC and BPCL holding 25% each. OIL will get 5% stake from ONGC and BPCL each, once the deal fructifies. The deal was delayed since BG felt that the valuation offered by the consortium was low. While BG is reportedly looking for R4,500 crore, the consortium has offered between R3,800 crore and R3,900 crore. Shares of Gujarat Gas were marginally down on the BSE on Wednesday to close at R310.60. The company had a market capitalisation of R3,983 crore as on Wednesday.

Gujarat Gas has operations spread across the Surat and Bharuch districts and supplies gas to around 3.5 lakh domestic, commercial and industrial customers and 1.75 lakh compressed natural gas (CNG) users. BG is giving indications that they will not let go, unless they get a good price, ONGCs Vasudeva said.

Analysts said ONGC and OIL, that do not have a presence in the city gas distribution segment, will stand to gain more from the bid for BGs stake in Gujarat Gas, since alternative ways to get into the segment is cumbersome.

With the move, these players are getting into a well-established business in major cities with steady cash flows, an analyst, not wishing to be named, said. The alternative is to bid through the Petroleum and Natural Gas Regulatory Board (PNGRB), but that may not be for big cities.

Another added attraction is the possible manner in which prices of cooking gas will move. If LPG prices increase with any move to rationalise prices, piped natural gas (PNG) will stand to gain. Similarly, any move to deregulate diesel will impact the CNG business positively, since the latter is an alternative to diesel, he added.

Stalemate

* In Nov 2011, BG said it will exit 65% stake in Gujarat Gas

* Government-run firms ONGC, BPCL, GSPC & OIL team up to bid

* Deal delayed as BG seeks better valuations

* BG is looking for R4,500 cr while consortium has offered Rs.3,800-3,900 cr