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GVK in Talks With UK’s BG to Sell Deep-Water Block Stake

  • GVK is also in talks to sell a stake of up to 26% in its airport subsidiary to raise as much as Rs. 3,000 cr.GVK Power and Infrastructure Ltd, which needs to raise $1.1 billion (around Rs. 5,400 crore) to invest in the medium term across its businesses and especially in power, may look to sell a part of its stake in seven oil and gas blocks off India’s west coast.
  • Two people familiar with the development, who didn’t want to be identified, said GVK was in talks with the UK’s BG Group Plc for this. One of the two added that BHP Billiton Ltd, GVK’s partner in the blocks, may also increase its holding.
  • GVK group chairman G.V. Krishna Reddy said, “I can’t confirm this.”Spokespersons for BG India and GVK Power declined to comment.Rajnish Gupta, India country manager at BHP Billiton, declined to comment.
  • Mint couldn’t immediately assess the value of the blocks, which are yet to be explored, though the second person familiar with the development claimed that “they looked promising”. GVK is the main investor in these blocks with a 74% stake. BHP Billiton holds the rest and functions as an operator of the deep-water blocks.
  • According to information posted on the GVK website, the company plans to spend Rs. 220 crore in the next three years on “major work”, including “mapping area to gather new seismic data in relation to all the seven blocks that are being explored”.
  • The GVK group last year closed a deal to acquire coal mines and associated infrastructure from Georgina Hope Rinehart’s Hancock group for $1.26 billion and is in the process of raising funds for this.
  • GVK Power is also in talks with investors to sell a stake of up to 26% in its airport subsidiary to raise as much as Rs. 3,000 crore, after becoming the largest stakeholder in the Mumbai and Bangalore airports, Mint reported on 21 October. Mint also reported that GVK plans to sell a part of its stake to garner additional funds for expansion of the oil and gas business, on 5 August.
  • Analysts, too, expect the conglomerate, with business interests in airports, roads, power and resources, to sell stakes in some of its businesses to raise money.
  • “GVK’s medium-term capex commitment equates to $4 billion for which equity requirement would be $1.1 billion, i.e. almost 2x (twice) the company’s market cap,” said a 16 February report by JPMorgan Asia-Pacific Equity Research.
  • The second person added that “GVK needs the money” and that it had approached BG Group some time back.
  • The JPMorgan report said GVK’s choices include diluting stakes in various business segments to strategic partners, borrowing at the parent’s level to meet equity commitments, raising equity at the parent’s level, or divesting a few projects altogether.
  • “Thus, we think significant equity dilution is imminent, given GVK’s ambitions,” the report added.
  • BG Group has a presence in India along with state-owned Oil and Natural Gas Corp. Ltd (ONGC) in a deep-water block in the Krishna-Godavari basin off the east coast, where it is the operator. It is also part of a consortium that operates the offshore Panna-Mukta and Tapti fields along with ONGC and Reliance Industries Ltd (RIL).
  • India’s oil and gas sector has attracted interest from investors such as London-based BP Plc and Vedanta Resources Plc last year. While Mukesh Ambani-owned RIL offloaded a 30% stake in its hydrocarbon blocks to BP for $7.2 billion, Vedanta Resources acquired a majority stake in Cairn India Ltd for $8.71 billion.

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