Adani Group wants better price for its CGD business

Vol 9, PW 6 (30 Jun 05) People & Policy

Gujarats Adani Group is no longer in a hurry to sell equity in its city gas distribution business to British Gas subsidiary Gujarat Gas.

Negotiations between the two sides began early this year and were close to conclusion in March when the Adani Group began to have doubts over its decision to sell 50% of its CGD company Gujarat Adani Energy. A source tells us talks are still ongoing but that Adani management is having second thoughts.

One of the issues is valuation, we learn. The Adanis feel they should get a good value and are not happy with the figure offered by Gujarat Gas.

Other equally important hurdles are surfacing. One, the Adani Group doesnt want to be excluded from the CGD business by Gujarat Gas at a later date.

They (the Adanis) want to ensure that Gujarat Gas (with 50% equity stake in Gujarat Adani Energy) wont take over the business entirely. Two, Gujarat authorities and ruling party politicians are unhappy with the Adani move to sell equity to Gujarat Gas.

Theyve been told very clearly that if they go ahead with this proposal theyll be seen as a non-serious player in the CGD business. Three, the Adani Group has woken up to emerging CGD opportunities across India.

They are looking very closely at setting up CGD businesses in about 45 or 50 cities, we learn. They see CGD as a promising business area.

Useful experience setting up a CGD network in Ahmedabad from nothing will come in useful. It makes sense to have management control of operations in Ahmedabad.

Instead of formally calling off the deal, the Adanis plan to prolong talks until Gujarat Gas puts a better price on the table. Whatever the outcome of this strategy, one thing is clear: the Adanis want to retain management control of Gujarat Adani Energy.

Would Gujarat Gas be comfortable with this