Varun to sell more petro assets in Madagascar

Varun Industries, the Mumbai-based stainless steel-ware company, is looking at selling majority stakes in oil & gas and uranium assets it holds in the African nation of Madagascar in the next 1-2 years to fund its capital expenditure plan in India.

While it did not disclose how much it expected to generate from the Madagascar sales, the stainless steel maker said it will bring in regular cash flows for its `1,000 crore domestic capex plan.
Varun currently holds interests in oil & gas, uranium, rare earths assets and a gold mine in Madagascar, which it has accumulated over the last few years, and plans to develop them through joint ventures.

On Tuesday, the company sold a majority stake of 51% in a joint venture company — Sure King Varun Hong Kong Ltd — formed with Da Qing Oil Field Company of China, for $150 million (`750 crore).

“We will try to replicate this model for other assets in Madagascar as this brings us upfront cash, expertise and will also help us in trading the mined commodity due to the reach of our joint venture partners,” said Kiran Mehta, chairman and managing director, Varun Industries.

The company is building a stainless steel flats plant in Rajasthan and has proposed a half-a-million tonne sponge iron factory in Karnataka. In the first phase, these two plants will together need an investment of close to `1,000 crore.

Mehta said the company is also scouting partners for its offshore oil and gas block and uranium reserves in Madagascar.

However, every transaction will not include selling of majority stake and will depend on the capex requirement.

“While we will look at selling majority stakes in oil & gas and uranium, for rare earths and gold we will look at bringing in minority stakeholders as it requires limited capex, which the company can itself handle without fundraising,” Mehta said.
Its gold mine operations are expected to start from the second quarter of the next fiscal and reflect in the balance sheet. Company officials, however, declined to divulge revenue expectations from the mine.

On rare earths, Mehta said that Varun Industries is seeing substantial interest from players in China, Australia and Russia and talks were on. A final agreement will take some time, he said.
But experts say rare earths, though holding a lot of sheen, are set to have a muted year in 2012.

A recent Bloomberg news report said China, the world’s largest producer of the mineral, has kept its 2012 target unchanged due to high prices and lacklustre demand.