Videocon Industries Ltd. (VCLF), controlled by Indian billionaire Venugopal Dhoot, is seeking $3 billion for its stake in a Mozambique gas field, said a person with direct knowledge of the matter.
Videocon, which runs businesses from making flat-screen television sets to operating mobile-phone services, is in talks with companies including Royal Dutch Shell Plc (RDSA), the person said, asking not to be identified because the discussions are private. Videocon may find a buyer for the stake in about six months, the person said.
Selling its 10 percent share in the block in Mozambique, home to the world’s biggest gas discovery in a decade, will help the group pay 200 billion rupees ($3.6 billion) of debt and reclaim mobile-phone licenses in India that were canceled by the nation’s top court earlier this year. Videocon may also sell its phone business in two years to focus on consumer electronics and hydrocarbons, the person said.
“The valuation Videocon is seeking certainly looks fair, given the quantities of gas that have been discovered,” said Deven Choksey, managing director at K.R. Choksey Shares & Securities Pvt. in Mumbai. “Funding the entire Mozambique project would put great stress on their finances.”
Dhoot didn’t answer two calls made to his mobile phone today, while Shell’s spokesman Jonathan French declined to comment.
Racing to Develop
Energy companies are racing to develop new production in East Africa, one of the world’s least-explored oil and gas regions, to meet rising demand from consumers in Asia. Videocon agreed to pay $75 million for the stake in Mozambique’s Rovuma-1 area in 2008 to Anadarko Petroleum Corp. (APC:US), which leads the group exploring the reserve.
Bharat Petroleum (BPCL) Corp., India’s second-largest state refiner, and Cove Energy Plc (COV), are among the other investors in the field where natural gas equal to as much as six times the U.K.’s existing reserves have been found.
Shell in July dropped out of a race to buy Cove Energy, which owns 8.5 percent of the block, leaving Thailand’s PTT Exploration & Production Pcl (PTTEP) as the only bidder. PTT Exploration’s offer values Cove Energy at 1.2 billion pounds ($1.9 billion).
Videocon, which has dropped 3.7 percent in the past year, dropped 0.1 percent to 173.75 rupees at the 3:30 p.m. close in Mumbai, after gaining as much as 1.1 percent, giving it a market capitalization of about $1 billion. Profit at the company, excluding subsidiaries, fell 26 percent to 5.5 billion rupees in the year ended March.
Shell, Europe’s largest oil producer, has also begun talks with Anadarko over buying some or all of its stake in the Rovuma-1 license, people with knowledge of the matter said in July.
“It’s a big resource,” Shell’s Chief Executive Officer Peter Voser said on an analysts conference call on July 26 when asked about energy explorations in East Africa. “The valuation has to be right, and that’s where we took a view on Cove. We took a view on the valuation but we also took a view on the process itself, and therefore we will look at other opportunities if they come along.”
Rovuma-1’s reserves of as much as 60 trillion cubic feet of recoverable gas is enough to support the construction of liquefied natural gas terminals for exports to Asia, including India. Bharat Petroleum, which also owns a 10 percent stake in the area, may spend $2 billion as its share of the cost of developing the $20 billion gas project, Chairman R.K. Singh said in June.
Videocon plans to borrow as much as $1.4 billion to pay for its share of the development even as it looks for a buyer, the person said. The loan, which the company plans to raise by October, will be dollar-denominated and will have a tenure of six to eight years and pay an interest rate of 300 basis points to 350 basis points over libor, the person said.
Videocon also owns stakes in four oilfields in Brazil and will wait to complete exploring the area before deciding on selling the shares, the person said.
Reducing debt will help Mumbai-based Videocon bid for mobile-phone licenses at home after the nation’s Supreme Court canceled 21 of Videocon Telecommunications Ltd.’s licenses, among the 122 permits it scrapped in February. The Indian joint ventures of Telenor ASA (TEL), Emirates Telecommunications Corp. (ETISALAT) and Russia’s AFK Sistema were also among those who lost their licenses.
The court canceled the licenses after sale of the permits in 2008 sparked the nation’s biggest corruption probe and led to the jailing of a former minister. India’s auditor said in a 2010 report the sale of the airwaves lacked transparency and ineligible bidders bought them at “unbelievably low” prices, denying the treasury of as much as $31 billion.
India is divided into 22 telecommunications zones and an operator needs to seek a license and spectrum for each zone to operate in it.
Videocon plans to bid as much as 45 billion rupees to reclaim licenses that were canceled, the person said. India last month set a minimum price of 140 billion rupees for bidding for nationwide airwaves.
Videocon had 5.58 million mobile-phone users at the end of June, or 0.6 percent of India’s mobile market, according to data from India’s telecommunications regulator. India is the world’s second-largest mobile market after China, with 934 million wireless connections.
Videocon is likely to secure seven or eight of its original licenses, the person said. It will focus on smaller, more sparsely-populated telecom zones, and will not attempt to keep licenses in major cities such as Mumbai, New Delhi and Chennai, where bidding is likely to escalate, the person said.
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