No takers for Mukesh's RGTIL

Valuation slips on rights cancellation OIL pulls out, GAIL puts plan on ice

Concerns over valuations of Mukesh Ambani’s privately owned Reliance Gas Transportation Infrastructure Ltd (RGTIL) are deterring companies from bidding for Reliance Industries’ only pipeline company. Oil India has already withdrawn from the race, while GAIL India, another government company that had expressed interest, has put the proposal on hold.

Bankers say the deal was to be packaged with RGTIL’s four other trunk pipelines. The promoters expect more than Rs 10,000 crore. Even though RGTIL has invested Rs 14,000 crore in laying the East-West pipeline, these companies are finding the price too high. “Given that the authorisation of the other four pipelines has been cancelled, it does not make sense to bid for the East-West gas pipeline alone,” said a banker.

RGTIL, which operates the 1,396-km, 48-inch East-West gas pipeline between Kakinada in Andhra Pradesh and Bharuch in Gujarat, has been on the block for about a year now. The pipeline transports natural gas from RIL’s KG-D6 fields and has been in operation since April 2009. “We had bid for the pipeline earlier but found the valuations too high. We knew it was going to be over a billion-dollar bid and decided it would be too big an investment for us. We withdrew from it to focus on our core business,” Ananth Kumar, director (finance), Oil India, told Business Standard.

RGTIL was originally a subsidiary of RIL and was incorporated in March 2003 to transport natural gas from eastern offshore gas fields. Two years later, however, it was transferred to RIL Chairman Mukesh Ambani. An email sent to RIL did not elicit any response. An RIL spokesperson said he could not comment as RGTIL was privately held by Ambani.

Another banker involved in the due diligence admitted, given RGTIL’s debt , there were valuation concerns, but he did not put a figure to the company’s debt. “GAIL, too, may reconsider the deal. As of now, it has kept the plan on the back burner,” he said.

THE STORY SO FAR

• RGTIL, incorporated in March 2003, was originally a subsidiary of RIL
   
• In 2005, it was transferred to Mukesh Ambani
   
• Ambani invested around Rs 14,000 crore in setting up the pipelines
   
• RGTIL has been on the block for almost a year
   
• Valuation concerns, say bankers, are driving bidders away
   
• Oil India recently withdrew from the race due to high valuation
   
• GAIL India, say bankers, has put the deal on hold
   
• RGTIL’s four trunk pipelines were to be part of the deal
   
• Authorisation for the four pipelines was cancelled, as RGTIL could not lay those within the given time

GAIL India Chairman B C Tripathi was unavailable for comment. However, a senior official said the company had not decided on what to do with the deal yet. Another banker added: “There is no commercial logic for this deal to go through. If it does, it will be a political deal and not a commercial one.”

Despite cancellation of rights, some analysts believe the existing pipeline itself may be a good buy. The Petroleum and Natural Gas Regulatory Board (PNGRB) had recently fixed the capacity of East-West gas pipeline at 85 mscmd. Besides, gas discoveries by ONGC and GSPC in the neighbouring blocks of KG-D6 can also serve as good potential sources of gas in the near future.

However, a senior official from a rating agency said, on the condition of anonymity, “It makes sense for any pipeline company to acquire East-West gas pipeline. But the upside is limited as pipeline tariff is governed by PNGRB. Besides, given the shortage of gas, what volumes are transported also matters.”