According to the Economic Times, Gas Authority of India Limited (GAIL) plans to raise Rs 3 bn by way of bonds from the domestic market through development financial institutions and Rs 1 bn by way of private placements.
GAIL is a natural gas distribution and transmission company that has India’s only pipeline infrastructure extending to 3,900 kms.
GAIL has an overall expansion plan of Rs. 12 bn, out of which 8 bn will be brought in from internal accruals. With the firming up of global crude oil prices, liquefied natural gas is emerging as a cheaper alternative to crude oil. GAIL is ideally positioned to take advantage of this shift in preferences especially in view of its excellent infrastructure for distribution and transmission of liquefied natural gas.
GAIL is also planning to make forays into the sector of telecommunications in line with the potential for the sector.
It will also engage in exploration for fresh resources of natural gas. The borrowing will also facilitate the completion of two LPG plants and a new pipeline project. GAIL will also be able to improve upon its existing pipeline infrastructure, enabling better marketing and distribution of its products.
It may also enable GAIL to enter into more joint ventures with domestic and overseas partners for manufacture, exploration and distribution. It will enable GAIL to improve its domestic market share from 23%.
The debt equity ratio of the company, which stands at 0.4, is likely to go up to 0.8 times equity as a result of the borrowing. The move to borrow at the present is a move in the right direction as many analysts are of the opinion that interest rates have bottomed out, as a result of the recent cut in the Cash Reserve Ratio and the Bank rate by the RBI recently.
GAIL has firmly established itself as a market leader ever since moves to import natural gas from Iran, Oman, Qatar through international pipelines have run aground owing to infrastructural problems.