Financial Daily from THE HINDU group of publications
Monday, Mar 11, 2002
Mergers & Acquisitions
Corporate - Mergers & Acquisitions
Shell seeks to buy out Bharat Shell's LPG biz
NEW DELHI, March 10
THE Shell group has informed the Foreign Investment Promotion Board (FIPB) that it is interested in acquiring Bharat Shell Ltd.'s LPG business. It has sought permission for Butagaz International BV to set up a wholly-owned subsidiary in India for that purpose. It also intends to make further investments to carry out the business.
(The Netherlands-based Butagaz International BV is a wholly-owned subsidiary of Shell Petroleum NV, a holding company of the Shell group of companies).
The Shell group had stated in its application that it was interested because of expectations over the continued growth of LPG market here and the steady phasing-out of subsidies to public sector units, thereby offering a level playing field to private players. The company said that its inherent technical and marketing strengths would enable it to identify new value generating opportunities such as auto gas and quickly expand the business post-acquisition.
It also stated that it was willing to disinvest 26 per cent stake in the wholly-owned subsidiary within five years or as stipulated in the existing policy.
BSL is a 51:49 joint venture between Shell Overseas and Bharat Petroleum Corporation Ltd (BPCL). Established in 1993, the company is engaged in the business of lubricants and LPG in India.
The company has a paid-up capital of Rs 200 crore. It posted a gross turnover of Rs 262 crore in 2000-01 and a loss of Rs 18 crore.
Butagaz's core business is marketing and distribution of LPG in new markets.
According to company estimates, the total capital requirement for acquiring the LPG business of BSL and making the necessary investments thereafter will be about Rs 14.40 crore.
The acquisition will be financed through equity, while debt funds will be resorted to from local banks on a need basis. Post-acquisition, the debt-equity ratio would be 0.4, the application stated.
The majority partner of BSL has informed the FIPB that BSL is exiting LPG business for three reasons.
First, the business has proved to be unprofitable, resulting in the accumulation of substantial losses. Second, the losses in LPG business had affected the growth of the profitable lubricants business, and third, BSL would need fresh infusion of funds to continue the business.
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