French energy major Total is on course to acquire a 37.4% stake in Adani Gas to develop gas distribution infrastructure in India and supply gas at affordable prices.
Total Holdings SAS, a 100% subsidiary of Total SA, will make an open offer to existing shareholders for 25.2% at `149.63 per share. In case all the existing shareholders subscribe to the issue, Total will acquire the remainder from the promoters.
The total deal is expected to cost the French energy major `6,090 crore. Currently, the promoter group holds 74.8% in Adani Gas and the remaining 25.2% is held by the public. In order to keep the public shareholding at current levels, promoters would do an offer for sale, experts told FE. Assuming full acceptance of the open offer, Total would have to pay `4,146.94 crore for the stake to the shareholders.
Shares of Adani Gas on Monday closed 9.41% up at `150.60 a share on the BSE after hitting an intraday high of `162.4.
Following the deal, both partners intend to make significant investments over the next 10 years to develop India's city gas infrastructure, distribution, marketing businesses with presence in over 15 states reaching out to approximately 7.5% of India's population. The company also plans to set up a world-class LNG distribution network and fuel retailing infrastructure in India. Patrick Pouyanne, CEO, Total, said that the company has bigger ambitious plans in the renewable energy for India as well. He was speaking at the India Energy Forum by CERAWeek held in New Delhi. The aim of the Adani deal is "to lower gas prices so that it can complete against coal and help fight climate change", a Total spokesperson told FE.
As part of the existing joint venture, Adani and Total will build a fuel retail network of 1,500 retail stations on the main roads of the country, such as highways and intercity connections. The company will also set up 1,500 compressed natural gas (CNG) stations for gas distribution over the next 10 years. Investing in city gas distribution (CGD) was a natural extension of for both partners and together they plan to invest $1 billion in developing the gas infrastructure and assets that span liquefied natural gas (LNG) infrastructure, and marketing and fuel retail business. "Total will bring in the expertise in gas distribution business from France where they are the largest distributor, while we will provide the on-ground execution services," Jugeshinder Singh, Group CFO, Adani Group, said.
The company has planned an investment of close to `7,000 crore over the next 5-10 years on setting up gas infrastructure across its 38 Geographical Areas or concessions won under various rounds of bidding by PNGRB. Total is in alignment with this investment of Adani's. Total, the world's second-largest LNG private player, will serve the fast growing gas demand of the Indian market, explained Singh. The expanded partnership will develop re-gasification terminal at Dhamra LNG, on the East coast of India to market LNG to the Indian markets.
When asked if Adani would dilute further stake in the company and if Total plans to take majority stake, Singh said, as of now, there is no plan to dilute the stake further. However, he said, Total will have equal representation on the board. "We will decide on the 7- or 9-member board after the deal is completed," Singh said. The deal is likely to conclude between January and February, Singh said.
Total is taking into account the divestiture of its interest in Hazira terminal early 2019, which was pegged at about $92 million, the establishment of this partnership on gas in India represents a net acquisition cost of approximately $600 million over 2019-2020.
When asked about the recent instances of certain states reneging on renewable purchase contracts, Total's Pouyanne said that "it is important to have contractual stability for investors".
Experts have cautioned that recent instances of curtailment of solar and wind power in Andhra Pradesh and Uttar Pradesh can throw a spanner in the country's ambitious plans of having 175 GW by December 2022.