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Gujarat Gas to merge with GDNL, becomes Asia’s largest distributor

Wednesday, 23 April 2014 - 7:56pm IST | Place: Ahmedabad | Agency: dna

But stock price fell over 8% as experts afraid of company’s debt to rise by up to Rs3,000 crore

Gujarat Gas, owned by state-owned GSPC, has announced the merger plan with Gujarat Gas and four arms of the company. So, Gujarat Gas will soon be known as GSPC Distribution Networks Ltd (GDNL).

With the new entity, it becomes Asia’s largest gas distributor company. Post-amalgamation, the merged entity will have a combined volume of around 8 mmscmd, with presence in over 16 districts of Gujarat.

Following a board meeting on Tuesday, the company announced that the board of directors has considered and approved of the amalgamation of Gujarat Gas Company, Gujarat Gas Financial Services (GFSL), Gujarat Gas Trading Company (GTCL), GSPC Gas Company and GSPC Distribution Networks (GDNL).

It is believed that the new entity of Gujarat Gas, GDNL, may be listed on the bourse in the next six to eight months. The market, however, has not welcomed the move. The stock price of Gujarat Gas crashed by 8.60% or Rs35 per share to Rs374.50 per share on BSE after the company announced the merger plan on Tuesday. Experts believe that the new merged entity would have a higher debt, affecting profitability.

Investors of Gujarat Gas Company will neither lose nor gain through amalgamation, said Bhadresh Shah, vice-president of Wealth First Portfolio Managers. “The announcement has a lot of hidden information such as debt of the other companies. There are high possibilities of the company turning from zero debt to huge debt. Hence the stock price crashed. We suggest long-term investors to stay with Gujarat Gas.” 

Similarly, the managing director of Prudent Corporate Advisory Services, Sanjay Shah, felt that investors need not panic. “Investors do not lose anything from the amalgamation,” he assured.

At present, Gujarat Gas holds 69.88% and 100% of the total issued, subscribed and paid-up share capital of GFSL and GTCL, respectively. Since GFSL and GTCL are transferor companies, the shares held by the company in GFSL and GTCL shall be extinguished. Accordingly, no new shares of GDNL shall be issued in lieu of such shares getting extinguished, the company told stock exchanges. 

Currently, GSPC Gas, GSPL and GSFC hold 44.45%, 38.89% and 16.66% paid-up capital of GDNL, respectively. Further, the existing issued, subscribed and paid-up capital of GDNL are to be reduced.

The board approved of the amalgamation through Gujarat high court approved composite scheme of amalgamation and arrangement. As per the announcement, all assets and liabilities of Gujarat Gas, GFSL, GTCL and GSPC Gas would be transferred to GDNL. In consideration of the amalgamation, GDNL will issue and allot one share of Rs10 each, credited as fully paid up of GDNL, will swap for every equity share of Rs2 each held by equity shareholders of the Gujarat Gas Company.

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