IVRCL to sell 37.5% stake in IOT Utkal Energy Services

Written by MG Arun | Mumbai | Updated: Apr 13 2012, 06:47am hrs
Hyderabad-based road and real estate developer IVRCL, which is under a takeover threat from Subhash Chandra-promoted Essel Group, is looking to sell 37.5% stake in IOT Utkal Energy Services, a special purpose vehicle that is building a storage terminal for IndianOils upcoming refinery at Paradip, Orissa, for R3,000 crore.

Analysts say IVRCL chairman Sudhir Reddy may receive roughly R400 crore from the sale as the terminal will be ready by October 2012.

IOT Infrastructure & Energy Services, a joint venture between IndianOil and Germanys Oiltanking, owns 52.5% in IOT Utkal Energy Services, while Oiltanking, the worlds second largest terminalling company, holds the remaining 10%.

IOT Infrastructure & Energy Services, which has the first right of refusal for the IVRCL stake, is keen to pick up the stake and a deal is likely to be signed by July, people familiar with the development said.

If there is a right party and the right price, we will look to exit the JV, Balram Reddy, IVRCLs chief financial officer, told FE in a telephonic interview. IOT has the first right of refusal in this project.

IVRCL would first take an offer from a third party, and if IOT makes an offer above the third partys offer, the stake would go to IOT, he said, adding, Our strength is in construction. Since the storage terminal in Paradip is nearing completion, we will exit and look to invest in new projects. Shares of IVRCL were up 4.45% to close at R73.90 on the BSE on Thursday.

The terminal, which can store both crude oil and finished petroleum products like petrol and diesel, is being constructed on a BOOT (build-own-operate-transfer) scheme. The engineering, procurement and construction (EPC) of the project, with over 15 lakh cubic metres storage capacity, is being executed by IOTs EPC division and IVRCL. IOTs terminalling division is carrying out the operations and maintenance (O&M).

The company would not like to comment on the matter, IOT managing director Jayanta Bhuyan said when asked whether his company will make a buy offer for IVRCLs stake. IOT operates 17 terminals, of which it owns the ones in Mumbai, Goa, Chennai and Paradip. The others are on a build and operate basis.

Analysts said investments in storage terminals fetch good returns as the business is stable. Refineries require huge storage facilities, said an analyst, who tracks the oil and gas segment. In the case of the Panipat project, the terminal has only a single customer IndianOil but that customer has a strong credit profile.

Government-owned oil refiners are increasingly preferring to outsource capital intensive storage operations to third parties, as they are already burdened by huge under-recoveries or losses made from selling fuel below their cost, and high interest on borrowings.

IndianOils 15-million-tonne-a-year Paradip refinery, in which the company is investing R30,000 crore, has been delayed by a year and is now expected to be completed in March 2013.

There have been some land issues and delay in execution of contracts by some contractors, the analyst said. But this should not affect the developers of the terminal, since normally in such projects, they are compensated by the customer, in this case, IndianOil.

IVRCL shot into limelight after Asian Satellite Broadcast and Jay Properties, two companies from of the Essel Group, purchased 10.19% stake in it through market operations recently, making their combined stake only a shade lower than the 11.18% held by the Reddy family. Under the new takeover code, Chandra can raise his stake in IVRCL to 24.9% and become the single-largest shareholder without triggering an open offer. However, IVRCLs Balram Reddy told news agencies recently that the company is ready to resist the (takeover) move to any extent.