GSPL to acquire 28.4% stake in Gujarat Gas from GSPC

GSPL’s board has approved to acquire 3.91 crore shares or 28.4% equity of Gujarat Gas Ltd.

Mar 20, 2018 10:03 IST India Infoline News Service

Gujarat State Petronet
GSPL’s Board has approved to acquire 3.91 crore shares or 28.4% equity of Gujarat Gas Ltd. (GGL) from its parent entity GSPC. Although GSPL has not shared the price at which the acquisition will be completed, but at CMP it would be worth ~Rs3,240cr. The transaction will be completed through inter-se transfer between group companies and thus may not trigger an open offer.

GSPC debt to come down by ~Rs3,200cr. The transaction is targeted to lower the debt on GSPC book. At present, GSPC has a debt of ~Rs16,500cr, and sale of GGL stake will help it to lower its debt by ~Rs3,200cr.

GSPL’s management has justified the deal saying that it is in line with its long-term strategic vision. However, we believe this would dilute the profile of the company and increase the risks. With the acquisition of GSPC stake in GGL, GSPL will own 54% in GGL (CGD entity) vs. 26% at present.

As per press release, the acquisition of stake would bring better business synergies between the business of GSPL and GGL as City Gas Distribution Network provides last mile connectivity to the end users of the gas. This would help to achieve economies of scale of businesses, enable faster roll-out of CGD networks on the strength of stronger balance sheet to maximize value for the shareholders.

The transaction has no impact for minority shareholders of GGL. However, with the promoter holdings now being consolidated (54% ownership with GSPL), Gujarat Gas will be a subsidiary of GSPL. The transaction has no implication on the operations and finances of GGL.

Gujarat State Petronet Ltd is currently trading at Rs176.35 down by Rs10.3 or 5.52% from its previous closing of Rs186.65 on the BSE. The stock is currently trading below its 100 DMA.

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