Videocon to cut debt with 10% stake sale in Mozambique gasfield

Indian firms in fray for its and Anadarko's stakes ; Brazilian petro assets now Videocon's focus

The Videocon group has planned to retire a substantial portion of its Rs 29,000-crore debt from the proceeds of the sale of its 10 per cent stake in a Mozambique gasfield, which could raise up to $3 billion (Rs 16,300 crore) by this month-end.

According to a banking source, Videocon is aiming to bring down its debt to a manageable Rs 10,000 crore over the next few years. With interest rates at a high, the reduction in finance costs will help the group to free its cash to invest in new business ventures.

The auction of Videocon’s stake is presently on in Hong Kong, with the part-sale (10 per cent) of the Mozambique field’s US-based operator Anadarko’s 36.5 per cent stake. The auction is expected to close by this month-end, the banker said, asking not to be named. Standard Chartered and UBS have the mandate to sell Videocon’s stake. None of Videocon promoters were available for comment.

The sale has attracted global majors such as Shell, Exxon, ConocoPhillips and Petrochina. Indian public sector oil companies led by Oil and Natural Gas Corporation (ONGC) and Oil India have been also working to make an aggressive bid, the banker said. If the Indian companies buy 20 per cent more stake from those offered by Videocon and Anadarko, they will emerge as the single largest stake owner in the company, with 30 per cent stake. Bharat Petroleum Corporation Ltd (BPCL) already owns 10 per cent in the Mozambique company, the banker said. Anadarko has 36.5 per cent and Japan’s Mitsui & Co has 20 per cent. Thai firm PTT has 8.5 per cent and thee Mozambique government-owned ENH owns another 15 per cent.

ONGC and its partners, Mitsui of Japan and BPCL, have signed an agreement to conduct a feasibility study of setting up a $500-750 million liquefied natural gas (LNG) import terminal at Mangalore. The investment in Mozambique will help them play an important role in Indian LNG energy supply, with the investments in Mozambique furthering their downstream investments in India.

The Mozambique sale is getting good bids, as the estimates of reserves have increased to a range of 60-100 trillion cubic feet (tcf). The recent discoveries have boosted the Southeast African country’s gas reserves to around 150 tcf and is enough to supply the world’s number one importer, Japan, for the next 35 years and meet growing demand from Indian industries.

Videocon, changing from only a consumer goods major to an oil and gas giant, will be focusing on its Brazilian operations. The Brazil fields have prospective resources of four concessions in 10 blocks of a little over 10 billion barrels of oil and oil equivalents. Of this, the joint venture between BPCL and Videocon will receive two billion barrels, valuing Videocon’s stake at an eye-popping $10 billion. The Brazil fields will start production from 2015-16.

The banker said Videocon had in 2011 planned an innovative structure of having an obligor/co-obligor structure for different long-term loans of the group, to provide more comfort to banks. “The idea is to bring more transparency and offer more security to lenders, as well as cut administrative financial charges,” the banker said.

The group is planning a public offer of its successful direct-to-home business, Bharat Business Channel Ltd, and has approval from the Securities and Exchange Board of India for its prospectus. Banking sources say the listing is expected by April-end, with a Rs 700-crore initial public offering, giving a valuation of Rs 5,400 crore to the entire direct-to-home business.