The Hinduja group-owned Gulf Oil Corporation Ltd (GOCL) on Tuesday announced it would continue to hold three divisions — explosives, mining products & services and realty, and infrastructure — even after the demerger of its lubricants division to Gulf Oil Lubricants India Ltd (GOLIL), the company’s wholly-owned subsidiary. The new arrangement was to be effective from April 1, 2014, after the completion of all formalities by way of court orders, etc, the company said in a press statement.
It added the value of equity holdings of all GOCL shareholders would be unchanged, as they would have equal shareholding in both GOCL and GOLIL. According to the scheme, for every two existing shares (face value Rs 2) in GOCL, they would receive a share of each of the two companies of the same face value (Rs 2 each).
“At the time of the merger of Gulf Oil India Ltd with IDL Industries Ltd in 2002, the turnover of the lubricants business was Rs 51.58 crore. Since the merger, the business has been growing at a CAGR (compounded annual growth rate) of 30 per cent; for 2012-13, the turnover was Rs 970.87 crore. Therefore, it was decided by the board that the business be demerged to allow the lubes business to grow further in a focused environment rather than as a division of the diversified company.”
This would also fetch market valuations applicable to lubricant companies, enhancing shareholder value, the company added.
GOCL would focus significantly on its property development business. Work at the company’s Bangalore site was on in full swing.
“The other businesses have been subdued through the last three years, though growth has been steadily upwards, albeit at a slower pace because of the lack of clarity in government policies with regard to mining and infrastructure,” said the company release.
As such, GOCL’s growth would, to a large extent, depend on government policies on mining, and the expansion of its realty businesses in Bangalore, Hyderabad and Bhiwandi (Maharashtra).
As the company’s lubricants business in India is dependent on a technical collaboration and brand licensing arrangement with Gulf International, the association will continue with GOLIL.
The agreement, currently valid for seven years, is renewable. The combined royalty is paid on arm’s length basis, effectively about one per cent of the turnover. For the company’s other businesses, no royalty is paid.
Further, the company clarified that it currently had no major equity dilution planned in GOCL and the resolution passed at the last AGM held on September 30, 2013 for $100 mn (approx Rs 600 crore) was in the nature of an enabling resolution, passed every year to provide quick management action in case of any large business opportunity that may arise. The court convened meetings of shareholders and creditors are scheduled for Thursday at Hyderabad.
The company also said for its acquisition of Houghton Inc, Gulf Oil International Limited, Cayman “has agreed to take full responsibility of servicing and repayment of entire balance loan(s) outstandings". Out of $300 million loan availed for this purpose from State Bank of India, $120 million had already been repaid. Gulf Oil Corporation Limited having provided the security to lenders for this loan would have to continue this item on its consolidated balance sheet till repayment and receive a commission for the same at the rate of 0.5 per cent annually. Hence 10 per cent of the holding in Houghton Inc. through its subsidiary HGHL Limited, UK would continue to be on the books of GOCL as an investment with no cash outflow from GOCL for servicing the debt, said the company.
According to the Scheme of Arrangement, the subsidiaries of GOCL in Bangladesh, Indonesia and China would be disinvested for an overall amount of Rs 54.9 crore. This transaction was completed and the company received the full sum.