A year after stitching an alliance with billionaire Gautam Adani to foray into the lucrative Indian market, French energy giant Total SA on Monday announced buying a 37.4 per cent stake in Adani Gas Ltd - the firm that retails gas to automobiles and households, for an estimated Rs 5,700 crore.
Total, which in August 2018 exited a JV with Royal Dutch Shell in a 5 million tonne liquefied natural gas (LNG) import terminal at Hazira in Gujarat, had in October last formed a 50:50 JV for two LNG import terminals of Adani on the east and west coast of India as well as for setting up of 1,500 petrol pumps in the country over 10 years.
Adani Group in a separate statement said city gas distribution is a natural extension of the plans of both partners to invest in infrastructure and assets worth over USD 1 billion, which span LNG infrastructure and marketing and fuel retail business, announced in October 2018.
The French firm is the latest energy major seeking to expand its presence in India, which is the world's third-largest and the fastest-growing energy consumer. In August, Reliance Industries said Saudi Arabian Oil Co will buy 20 per cent of its oil-to-chemical business at an enterprise value of USD 75 billion.
Total will first make an open offer to buy a 25.2 per cent stake in Adani Gas. Depending upon the success in the open offer, it will buy a stake from Adani to take its holding to 37.4 per cent in the company.
Adani family holds 74.8 per cent stake in Adani Gas and will dilute shares to the public to bring down its holding to 37.4 per cent - at par with Total, the two firms said in separate statements.
Adani family will sell some stake in the open market to meet the listing norm of keeping public holding at 25 per cent.
Adani Total joint venture (JV), where the two groups hold 50 per cent stake each, is building a 5 million tonne LNG import terminal at Dhamra in Odisha and will potentially hold a 25 to 50 per cent interest in Gujarat government's Mundra import facility.
This JV would also supply 3 million tonne per annum of LNG to India and Bangladesh.
Adani Gas, wherein Total and Adani would hold 37.4 per cent stake each, is targeting to set up 1,500 CNG stations to retail gas to automobiles and piped cooking gas to 6 million households. It will also set up 1,500 petrol pumps over 10 years.
"Taking into account the divestiture of the Group's interest in Hazira terminal in early 2019, the establishment of this partnership on gas in India represents a net acquisition cost for Total of approx USD 600 million over 2019-20," Total said.
Adani said both partners would make significant investments in the next 10 years across the businesses to develop India's gas infrastructure, distribution, marketing businesses with presence in over 15 states reaching out to 7.5 per cent of the country's population and setting up global scale and world class LNG, gas distribution and fuel retail infrastructure in India.
"As part of the existing JV, Adani and Total in the coming years will target to build a fuel retail network of 1,500 retail stations, on the main roads of the country, such as highways and intercity connections," it said. "Adani Gas will also be setting up 1,500 CNG stations for gas distribution over the next 10 years in its and its joint ventures’ geographical areas across 71 districts, 68 towns across 15 states in India."
In addition, Adani Gas and its joint venture will distribute gas to 6 million households in the next decade. Adani Gas CNG network will be developed exploring synergies including co-location of fuel retail and CNG outlets.
"Both businesses would have significant complementarities by providing a unique portfolio of multi-product services including gas where Adani Gas has exclusive marketing rights. These offerings are in line with international standards that will also include Total’s product range," it said.
As part of this partnership, Total will bring its LNG and retail expertise and will supply LNG to Adani Gas. Total and Adani will also establish a joint venture to market LNG in India and Bangladesh.
Adani Group Chairman Gautam Adani said: "Total's investment in Adani Gas reinforces India's natural gas and demand potential. The partnership will derive significant synergies between Adani's capabilities of developing world-class assets and Total's global best practices as well as leveraging business synergies across LNG, Fuel Retail and City Gas distribution. We look forward to working together towards delivering India’s vision for clean and green energy."
"Energy needs in India are immense," Total Chief Executive Officer Patrick Pouyanne said in the statement. "The natural gas market in India will have strong growth and is an attractive outlet."
Commenting on the deal, Wood Mackenzie research director Nicholas Browne said: "Total's investment in Adani is undoubtedly a show of faith in India's gas demand growth."
Natural gas currently accounts for just under 6 per cent of energy demand in India. The government has a target to increase this to 15 per cent by 2030.
"While we don't consider this likely, gas demand is set to grow considerably. Wood Mackenzie forecasts LNG demand will double from some 37 billion cubic metres (bcm) in 2018 to reach 75 bcm by 2030, equivalent to 7 per cent of the energy mix. LNG will meet approximately 50 per cent of this demand growth, providing a major growth opportunity for Total," he said.
Adani is attractive to Total for several reasons. Firstly, the development of the Mundra and Dhamra regasification terminals provides Total with market access for LNG. These terminals are also on the east coast where there is less competition from other terminals.
Secondly, Adani Gas was an active bidder in the recent distribution auction rounds. It is planning to expand the pipeline network. In turn, this will provide Total with a firm demand for gas.