Social cess, falling markets prompt firm’s move.
Gujarat State Petroleum Corporation's (GSPC), a state-owned oil and gas explorer, may have to cut the size of its initial public offering (IPO) by about 30 per cent because of a government requirement to part with a portion of its profit for social causes and also because of a drop in the benchmark indices.
The state government requires state-run companies to secede at least 30 per cent of their profit before tax (PBT) for social causes.
This, coupled with the prevailing market conditions, has prompted the company to rethink about downsizing its IPO from Rs 5,000 crore to Rs 3,500 crore, according to sources close to the development. The IPO is slated to hit the capital markets before March 2009.
"The valuation of the company will be dampened. Valuations of companies that are into oil and gas are capital driven and project-based, depending on profit generation and not on reserves alone,'' said Parthiv Shah, senior research analyst, Khandwala Integrated Financial Services.
"The state government should offer some subsidy in return. Institutional players always look for good corporate governance while subscribing to an IPO and Gujarat government is not setting a good example."
A recent state government's directive states that all these PSUs are to part with 30 per cent of their profit before tax (PBT) starting FY08. There are about 13 profit making PSUs in Gujarat. These PSUs have reported a collective profit before tax of over Rs 2,000 crore in the year ended 2008.
Gujarat Chief Minister Narendra Modi had said earlier that an IPO was the only option for GSPC to raise funds. The Gujarat government holds 95 per cent stake in the firm.
The company's PBT for FY08 was Rs 628 crore and it is likely to remain in the same range in FY09, said sources in the company. "Production from the KG basin will begin after two years, after which there will be a steep rise in profits," said sources close to the development.
With the valuations likely to go down, GSPC's dilution will also be affected, sources said. "The company's valuations for IPO can go down by 30-40 per cent," they said.
The money collected by the government by the mandatory secession will be used for the recently-formed development agency, Gujarat State Socio-Economic Development Society, which will be a registered trust. Many listed PSUs feel this move will block their divestment plans.
In the last one week, the share price of GSPL where GSPC along with other state PSUs like GMB, GIDC hold over 50 per cent stake, has plummeted by around 15 per cent.
GSPC has discovered more than 20 trillion cubic feet of gas in its exploration block in the Krishna Godavari basin, off the Andhra Pradesh coast, worth more than Rs 400,000 crore, Chief Minister Narendra Modi said in July. GSPC has already invested about Rs 3,500 crore for KG basin development and intends to invest an equivalent amount for which it has put its IPO plan on a fast track.
The money collected by the government by the mandatory secession will be used for the recently-formed development agency, Gujarat State Socio-Economic Development Society, which will be a registered trust. Many listed PSUs feel that this move will block their divestment plans.
Listed companies such as Gujarat Mineral Development Corporation (GMDC), Gujarat Narmada Valley Fertiliser Co (GNFC), Gujarat Alkalies Co (GACL), Gujarat State Fertilisers and Chemicals (GSFC), Gujarat State Petronet (GSPL) have seen a turnaround in their profits in the last three years or so.
On Thursday, angry shareholders had protested against this move at the annual general meeting of GMDC following which the AGM was shifted to September 24.
