IOC, ONGC keen to buy Gujarat Gas, Cairn not in race

State-owned Indian Oil Corp, ONGC, GAIL and Oil India Ltd, besides Adani Group, are interested in buying BG Group's stake in Gujarat Gas Ltd but find Rs 4,000 crore asking price too expensive.

Gas utility GAIL, explorers Oil and Natural Gas Corp (ONGC) and Oil India, besides fuel retailers Indian Oil, Bharat Petroleum and Hindustan Petroleum, have shown interest in buying BG Group's 65.12% stake in India's largest natural gas distributor by sales, industry sources said.

Other firms interested include Adani Group and Gujarat State Petroleum Corp (GSPC) but Cairn India is not keen.

Sources said the public sector firms are keen on forming a consortium to jointly bid for the stake in Gujarat Gas that sells gas to about 325,000 residential, commercial and industrial customers through a pipeline network of about 3,850 km in Gujarat.

GAIL, which is the largest city gas player in the country, is taking the lead and there is a possibility that at least two other firms including ONGC may join it in bidding for Gujarat Gas.

Sources said GAIL however is finding the valuation being proposed for the 65.12% stake as too high. If feels Rs 4,000 crore that is being quoted for the stake was 16 times the expected Rs 250 crore net profit of Gujarat Gas and eight times an asset replacement ballpark estimate of between Rs 400 and 500 crore.

There is a possibility of Adani Group bidding with IOC. The two firms had bid together for city gas licences. Alternatively, Adani may go with GSPC, with whom it has a working relationship.

BG Group has hired Citigroup Inc to advise on a potential sale of its stake in Gujarat Gas Co Ltd (GGCL).

Sources said while the state-owned firm see synergy in acquring GGCL as they either have produce natural gas or are its retailers but Cairn may not be interested as the company's business model is completely different.

Cairn believes in high risk, high reward ventures and gas retailing is not on its radar currently.

Besides GGCL, BG also holds a 49.75% stake in Mahanagar Gas Ltd, which sells CNG and piped gas in Mumbai.

Sources said BG has not yet put MGL stake on offer but may decide to do so after GGCL.

BG has already exited from all but one exploration asset in the country. It is left with just one exploration block in Krishna Godavari basin and has a 30% interest Panna/Mukta and Tapti oil and gas field with ONGC (40%) and Reliance Industries (30%).