Videocon to retire debt with Mozambique proceeds

The move may raise upto Rs 16,000 cr, which will help the group deleverage its balance sheet

Indian conglomerate Videocon is planning to retire a substantial portion of its around Rs 25,000 crore group debt from the proceeds of its 10% stake sale in the Mozambique gas field, which could raise upto $3 billion (Rs 16,300 crore) for the group by this month-end.

According to a banking source, Videocon is aiming to bring down its debt levels to a manageable Rs 10,000 crore to deleverage its balance sheet in 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 sale is now going on in Hong Kong along with the sale of Mozambique field’s US-based operator Anadarko’s 10% stake. The auction is expected to close by this month-end, the banker said asking not to be quoted. Stanchart and UBS have the mandate to sell Videocon’s stake.

When contacted, none of the Videocon promoters were available to comment on the issue.

The sale has attracted global majors including Shell, Exxon and ConocoPhillips and Petrochina. But the Indian public sector oil companies led by ONGC and Oil India have been working to make an aggressive bid, the banker said.

If the Indian companies buy 20% more stake from Videocon and Anadarko, they will emerge as the single largest stake owner in the company with 30% stake.  Government owned refiner - BPCL already owns 10% stake in the Mozambique company, the banker said.  Anadarko presently has 36.5% stake, while Japan's Mitsui & Co is the second-biggest stake holder in the block with a 20% stake. Thai firm PTT has an 8.5% share while Mozambique government owned ENH owns another 15% stake.

State-owned Oil & Natural Gas Corp (ONGC) and its partners Mitsui of Japan and BPCL have recently signed an agreement to conduct a feasibility study of setting up a $500-750 million liquid gas (LNG) import terminal at Mangalore. With this, Mitsui and Indian Oil PSU firms are expected to play a major role in the Indian LNG energy sector and having an investment in Mozambique gas field would help their downstream business in India.

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

Post Mozambique, Videocon, which is now transforming from a pure play consumer goods major to an oil & gas giant, will be focusing on its Brazilian operations. The Brazil fields have prospective resources in 10 blocks in 4 concessions of over 10 billion barrel of oil and oil equivalents.  

Of this, the 50:50 joint venture between BPCL and Videocon, will receive 2 billion barrels of oil thus valuing Videocon’s stake at an eye-popping $ 10 billion. The Brazilian’s fields will start production from 2015-16 thus adding to the valuation.

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

Videocon is also monetising its investments in its direct-to-home business. The group is planning an IPO of its successful direct-to-home business, Bharat Business Channel Ltd and has received the approval from SEBI for its prospectus. The listing is expected by April-end with a Rs 700 crore initial public offer thus giving a valuation of Rs 5,400 crore to the entire DTH business.