Gujarat Gas deal: Modi has his way. What about shareholders?

Political intervention, be it the BJP's, Congress' or Mamata Bannerjee's, is not good for business.

The proof? The sharp decline of more than 9 percent in share prices of Gujarat Gas (GGCL) after Gujarat State Petroleum Corp (GSPC) bought 65 percent in the company for a song.

The stake was bought from British Gas at a huge Rs 41 discount to the closing price of the stock on Wednesday.

According to reports, the deal value is Rs 2,464 crore, or Rs 295 per share, much below Rs 4,000 crore, which was the price initially BG was looking to sell the stake for. The stock had closed Wednesday at Rs 336.70. At 10 am, the stock is trading at Rs 304.95, down 9.4 percent.

The sharp decline of more than 9 percent in share prices of Gujarat Gas (GGCL) after Gujarat State Petroleum Corp (GSPC) bought 65 percent in the company for a song. AFP

According to a report in NewsWire18, GSPC has also made an open offer for another 26 percent stake in GGCL at Rs 314 per share.

There have been a lot of political posturing behind the scenes.

According to an earlier Times of India report, the decision by the multinational company to pull out of Gujarat itself was the result of an arm twisting by the state government.

The global energy major fell out of favour with the state government after it raised city gas prices.

The report also said state minister Saurabh Dalalhad asked all other private bidders, including the Adani group, a business group supposedly in the good books of Chief Minister Narendra Modi, to keep away from bidding for the GGCL stake.

BG was not unwillingness to sell the stake cheap and this resulted in the inordinate delay in finalising the deal.

Another reason was the politics played by the central government.

According to a report in The Economic Times, Modi had roped in central public sector companies ONGC and BPCL in the GSPC consortium to bid for the stake, allegedly to silence any criticism from the Congress.

But the central PSUs backed out as they failed to reach a consensus on the pricing. ONGC and BPCL had quoted Rs 235 for the stake, ridiculously lower than the price quoted by BG or GSPC, for that matter. The strategy was, reportedly, aimed at getting out of the consortium.

The stake has been finally bought by GSPC solely. The deal is touted to be a big win for Narendra Modi and his government, especially since the state is facing elections this year.

He can definitely showcase the deal as a desi company's victory over a multinational and this will also help him emerge unscathed from all allegations of interventions.

But what about the shareholders of Gujarat Gas?

Updated Date: Dec 20, 2014 12:28 PM

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