The stock of Gujarat Gas Company plunged 8.3 per cent on Thursday to close at Rs 308 on the NSE a day after Gujarat State Petroleum Corporation signed a definitive agreement to acquire 65.12 per cent stake in the company from BG.

It tumbled to a low of Rs 297.5, but recovered, after the company announced an open offer at Rs 314.17 a share.

According to oil and gas equity analysts, market reacted negatively to the deal as there are several overhangs in the gas sector playing spoilsport to investor sentiment besides the deal happening at a discounted price to the last closing price.

The deal was valued at Rs 2,464 crore, coming to Rs 295 a share, which was at a 12 per cent discount to the stock closing price on Wednesday when the deal was announced almost a year after BG announced its exit plans in November last year.

Subsequently, according to the SEBI takeover code, a mandatory open offer was made by GSPC Distribution Networks Ltd along with GSPC, Gujarat State Petronet Ltd and GSPC Gas Company Ltd to buy up to 26 per cent of the paid-up equity share capital of Gujarat Gas aggregating to Rs 1,047.6 crore.

This would entail mopping up 3.33 crore fully paid-up equity shares of Rs 2-paid up each at the offer price of Rs 314.17 a share, a 6.5 per cent premium to the price at which BG gas is exiting the venture.

If the open offer is fully subscribed, GSPC will have to dilute about 16 per cent stake to meet the SEBI norm of minimum 25 per cent public holding that would come into effect from June 2013.

Yogesh Patil, Equity Research Analyst (Oil and Gas) at K.R. Choksey, said: “Apart from the discounted price at which the deal occurred which negatively impacted the stock, the gas sector as a whole is struggling with a host of overhang issues such as the pending case in Supreme Court regarding tariff decision on the city gas distribution business, problem of gas supply owing to LNG import infrastructure bottlenecks and the huge difference in pricing between the domestic and imported gas impacting net profit margins of gas companies.”

According to analysts, going forward, the fundamental outlook on the stock doesn’t look too bright.

“Given that there is an open offer for the stock, we think the upside would be capped for at least a month and even if it rises there are concerns of GSPC selling stake in the open market and infusing supply which would adversely impact prices. ” said an analyst.

“On the positive side is the fact that Gujarat Gas has got a strong promoter now with good understanding of the gas business and finances for expansion plan. Moreover with a state owned promoter, Government approvals for their projects are also likely to happen more easily,” he added.

(This article was published on October 4, 2012)
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