Indian Tycoon Seeks 40-Fold Payout in African Gas Deal

Videocon Chairman Venugopal Dhoot
Venugopal Dhoot, Chairman of Videocon Industries Ltd. Photographer: Sam Panthaky/AFP/Getty Images

An Indian mobile-phone billionaire is trying to turn a $75 million investment in a Mozambique oil license 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 Industries Ltd., controlled by 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 per barrel than Thailand’s PTT Exploration & Production Pcl paid when it outbid Royal Dutch Shell Plc 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 Ltd. in London. “There will be buyers out there. Shell is the obvious candidate,” she said, adding interest is also likely to come from China, Japan and South Korea.

Mozambique and neighboring 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 multi-billion dollar plants to turn the gas into liquid for shipment by tankers, encouraging original investors like Videocon to sell out now.

Shell Talks

Videocon, which runs businesses from making flat-screen television sets to operating mobile-phone services, is in talks with companies including Shell, a person with knowledge of the matter 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.

The company’s shares closed little changed at 173.55 rupees in Mumbai today. 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 ($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.

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

$75 Million

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

Bharat Petroleum Corp., 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 Plc, which holds 8.5 percent of the block, leaving Thailand’s PTT Exploration as the only bidder, with an offer valuing Cove at 1.2 billion pounds ($1.9 billion).

“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.”

Exports to Asia

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, may spend $2 billion as its share of the cost of developing the $20 billion gas project, Chairman R.K. Singh said in June.

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

“People started to realize 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 PTTEP paid for Cove.”

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.

Brazil Fields

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 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.

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