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Videocon to cash in African gas stake

Ketaki Gokhale, Rakteem Katakey and Eduard Gismatullin

An Indian cellphone billionaire is trying to turn a $75 million (R631m) investment in a Mozambique oil licence into a $3 billion payday, banking on competition between the world’s largest energy companies to drive up the price of east Africa’s virgin natural gas fields.

Videocon mobile handsets are seen at display at a outlet in Mumbai on Friday, September 3, 2010. Billionaire Venugopal Dhoot's Videocon group may sell a controlling stake in its wireless unit to an overseas partner to help fund expansion of the business. We need a partner that's globally focused on telecom to help us carry this forward, Suresh Hegde, a director at the group, said in an interview in Mumbai yesterday. Videocon may sell as much as a majority stake in Videocon Telecommunications Ltd. after investing 50 billion rupees ($1.1 billion) in the network and spectrum for the mobile-phone company, he said. Photographer: Pal Pillai /Bloomberg. Credit: Bloomberg

Videocon Industries, which is controlled by Indian businessman Venugopal Dhoot, owns 10 percent of Mozambique’s Rovuma-1 offshore block, where more gas has been discovered than Libya’s entire reserves. His price tag is 50 percent more a barrel than Thailand’s PTT Exploration & Production paid when it outbid Royal Dutch Shell for a stake in the field earlier this year.

“To get a 50 percent premium would be quite high,” said Laura Loppacher, an analyst at Jefferies International in London. “There will be buyers out there. Shell is the obvious candidate,” she said, adding interest was also likely to come from China, Japan and South Korea.

Mozambique and neighbouring Tanzania, which have no track record of oil and gas production, are home to the largest gas discoveries in more than a decade and sit across the Indian Ocean from Asian economies needing energy imports to fuel growth.

Still, getting the gas to customers will require the development of multibillion-dollar plants to turn the gas into liquid for shipment by tankers, encouraging original investors like Videocon to sell out now.

Videocon, which runs businesses from making flat-screen television sets to operating cellphone services, was in talks with companies including Shell, a person with knowledge of the matter said, asking not to be identified because the discussions were private.

Videocon might find a buyer for the stake in about six months, the person said.

The company’s shares closed little-changed at 173.55 rupees (R26.13) in Mumbai yesterday. The stock fell 3.8 percent in the last year, compared with the 2.9 percent increase in the benchmark sensitive index.

Selling its 10 percent share in the block in Mozambique will help the group pay 200 billion rupees of debt and reclaim cellphone licences in India that were cancelled by the nation’s top court earlier this year.

Videocon might also sell its cellphone business in two years to focus on consumer electronics and hydrocarbons, the person said.

Dhoot didn’t answer two calls made to his cellphone yesterday, while Shell’s spokesman Jonathan French declined to comment.

Videocon agreed to pay $75m for the stake in Mozambique’s Rovuma-1 area in 2008 to Anadarko Petroleum, which leads the group exploring the reserve. The Houston-based Anadarko might also sell some of its 36.5 percent stake in the area and had held talks with Shell, people familiar with the matter said in July.

Bharat Petroleum, India’s second-largest state oil refiner, is also an investor in the block.

Shell in July dropped out of a race to buy Cove Energy, which holds 8.5 percent of the block, leaving Thailand’s PTT Exploration & Production as the only bidder, with an offer valuing Cove at £1.2bn (R16.02bn).

“It’s a big resource,” Shell’s chief executive 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 are enough to support the construction of liquefied natural gas terminals for exports to Asia, including India.

Bharat Petroleum, mightspend $2bn as its share of the cost of developing the $20bn gas project, the chairman, RK Singh, said in June.

The difficulty of developing the resources might cap valuations, said Stuart Joyner, the head of oil and gas research at Investec Bank in London.

“People started to realise that the cost side is going to be a problem,” Joyner said in a phone interview. “I can’t see any justification for a higher price than PTT Exploration & Production paid for Cove.”

Videocon planned to borrow as much as $1.4bn to pay for its share of the development even as it looked for a buyer, the person said.

The loan, which the company planned to raise by October, would be dollar-denominated and would have a tenure of six to eight years and pay an interest rate of 300 basis points to 350 basis points over the London interbank offered rate, the person said.

Videocon also owned stakes in four oilfields in Brazil and would wait to complete exploring the area before deciding on selling the shares, the person added.

Reducing debt will help Mumbai-based Videocon bid for cellphone licences at home after the nation’s Supreme Court cancelled 21 of Videocon Telecommunications’ licences, among the 122 permits it scrapped in February.

The court cancelled the licences after the 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 that the sale of the airwaves lacked transparency and ineligible bidders bought them at “unbelievably low” prices, denying the treasury of as much as $31bn.

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