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Vinod Mathew

The potential buyers for the GSPL stake at one time comprised Gaz de France, Royal Dutch Shell, British Gas and PSUs like GAIL (India), IOC, BPCL and Kribhco. While the French company had subsequently backed out, GSPL had shortlisted six companies in mid-2002.

Ahmedabad , Nov. 10

THE Gujarat State Petroleum Corporation (GSPC) is actively considering a merger with its subsidiary company, Gujarat State Petronet Ltd (GSPL).

The draft viability report on studying the pros and cons of the merger, which had been entrusted to the ICICI some time in June this year, is understood to be ready. Now, the petroleum exploration company is likely to take up the issue for active consideration at its board meeting scheduled for Tuesday, it is reliably learnt.

The major factor supporting the merger is the bankability of a combined balance sheet for fund accessibility to the capital-intensive operations of GSPL, whose turnover in the last fiscal was only Rs 60 crore. The gas transmission company has projected investment plans to the tune of nearly Rs 1,520 crore for the next three years. The overriding argument in favour of the GSPC-GSPL merger is that such an aligning of the books of accounts will lead to an interest rate that would be at least 3 per cent cheaper for GSPL. Presently, the cost of funds for GSPC is around 8 per cent while that for GSPL is slightly over 11 per cent.

"Evidently, there is a differential interest regime in prevalence that makes it imperative that we shore up GSPL's balance sheet for the better leveraging of funds. As the coupon on term loans are directly linked to the company's balance sheet, the logical way we can do this is by going in for a merger of GSPC and GSPL. It is for the board of directors of the respective companies to decide one way or the other," a senior official of GSPC told Business Line.

If the board meeting of GSPC scheduled for Tuesday supports such a line of action then it would have to go in for a series of State Government clearances as also that by a few institutional agencies. As GSPC has been mulling an IPO for quite a while, it would also need to be whetted by the SEBI and for the merger to become a reality, it could take up to four months.

On the flip side is the fact that GSPC, hitherto riding on huge profits, may be going in for a phase of massive investments on its own right, what with the Rs 250-crore offshore drilling platform at Hazira and over Rs 1,000 crore exposure at its Krishna-Godavari basin exploration block (KG-OSN-2001/3). This would put the projected investment requirements for GSPC at over Rs 1,600 crore over the next three years, taking the combined fund requirement by the two entities to nearly Rs 3,150 crore during this short period.

Meanwhile, the Gujarat Government's decision to lower the price of gas sold by GSPC to state utilities, from $3.45 per BTU to $2.7 per BTU has adversely impacted the company's targeted topline growth for the year to around Rs 800 crore from Rs 497 crore in 2002-03. And there is a slight worry that the decision to merge the dedicated gas transportation company such as GSPL with GSPC, a gas supplying company may not go down well with some of the major players in the field that are poised to emerge as major gas suppliers in their own right in the coming few months.

The merger proposal comes in the wake of many earlier moves to divest stake in the gas transportation company having run into rough weather. The list of potential buyers for the GSPL stake at one time comprised MNCs such as Gaz de France, Royal Dutch Shell, British Gas and PSUs like GAIL (India), Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Kribhco. While the French company had subsequently backed out, GSPL had shortlisted six companies as strategic investors for divesting 60 per cent of its equity in mid-2002.

However, the divestment move that had even frozen parameters on sale of equity including a equity limit between 10 and 25 per cent to a single entity, lost momentum after having reached as far as the making of draft shareholders' agreement. At that time, GSPL was aiming to raise Rs 250 crore from the sale of 60 per cent stake in the company. Though, there has been no dearth of suitors for GSPL, among the latest being the Infrastructure Development Financial Corporation (IDFC), the management

has now been convinced that there is no wisdom in divesting stake for around Rs 250 crore when its requirement is six-fold that amount.

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