Hindujas, Gulf partner in bidding war on lube firm

If former sells out, proceeds will go for part-payment of US firm acquisition loan

London-based Hinduja Group and its Saudi joint venture partner, Dabbagh Group, are engaged in a bidding war over their Saudi joint venture company, Petromin Corporation.

A highly-placed source in the Hinduja Group said it had offered to buy out Dabbagh’s 51 per cent stake in Petromin Corp. On the other side, the Dabbagh Group has offered to buy out the Hindujas’ 49 per cent stake in Petromin Corp for Rs  1,870 crore. "The final negotiations are on," the source said.

According to a source in the group, the announcement on the winner will be made in the next few weeks and the valuation of the company has been pegged at around Rs 3,800 crore ($700 million). The Hindujas had planned to exit the company after differences between the two partners arose over how to run the business.

If the Hindujas eventually sell out, the proceeds of the transaction will be used partly to pay off the loan taken to take over the US-based Houghton International for close to $1.05 billion last year. The American company was taken over by the UK-based subsidiary of India-listed Gulf Oil. The group is also focusing its operations in the North American and European markets as business conditions become tough in the Gulf region.

Based in Jeddah, Petromin Corp was set up in 1968. The Hindujas bought stake in the company in 2007 as there saw a synergy between its lubricant operations of Gulf Oil in India.

Soon, differences between the two partners cropped up and the Hindujas started looking for an exit.

For the Hindujas, the valuation of Petromin has taken a drastic hit. Just three years ago, it was expecting a valuation of $ 1 billion for the company and was planning to exit the company via an initial public offer. The group is still exiting at a profit as it had invested close to $100 million for its 49 per cent stake in 2007 and valued the Saudi company at $200 million at that time.

On Tuesday, Gulf Oil share price closed at Rs  62 a share, up 1.39 per cent over yesterday’s close. The stock is down around 24 per cent since January 1, 2013.