Gail India edged up on Thursday on reports that the company is planning to repay its high-cost loan from ADB. 

The stock of the largest gas transmission and marketing company in India was up by 1.03% at Rs 78.25 on the BSE in mid-afternoon trades. 60.700 shares changed hands on the counter.

The Gail stock has witnessed a sustained rise in the last few months, staging a recovery after every decline. From a low of Rs 61.05 on 19 September 2002, it has gained 28% to the current Rs 78.25.

The stock has seen a good dividend yield. It has turned more attractive now on this count as dividend has been made tax-free in investors' hands in the Union Budget for 2003-2004. The state-run company paid 45% dividend in FY 2003, and assuming maintenance of dividend at the same level, the current dividend yield (which is tax-free) works out to 5.7%.

The current rally on the Gail counter was due to reports that the company will pre-pay the costly $235 million loan from the Asian Development Bank through fresh market borrowings in the current fiscal. Gail will repay about Rs 500 crore (Rs 5 billion) to ADB on 14 April 2003. The methodology and feasibility for early repayment of remaining ADB loan is being worked out.

The gas transportation company is planning to raise Rs 1,500-1,600 crore (Rs 15-16 billion) long-term debt from the domestic market this fiscal, which will partly go towards pre-paying the ADB loan. The rate of interest on the ADB loan is 6.34% per annum. However, considering the foreign exchange fluctuations and guarantee fees, the effective cost to the company is around 14-15% per annum.

The fresh loans from ADB are now available at LIBOR plus 60 basis points i.e. 2.60%. The effective cost shall be around 8% per annum.

Gail is the largest gas transmission and marketing company in India. It owns and operates over 4,000 kms of pipeline and has about a 95% market share in the natural gas business in India. The company posted a net profit of Rs 359.29 crore (Rs 3.59 billion) for the quarter ended 31 December 2002, compared to a net profit of Rs 306.22 crore (Rs 3.06 billion) in the quarter ended 31 December 2001. Total income increased from Rs 2,680.64 crore (Rs 26.8 billion) in DQ-2001 to Rs 3,063.01 crore (Rs 30.63 billion) for DQ-2002.

Gail also plans on setting up a 6,400-km gas grid in the country in the next seven to eight years at a cost of around Rs 25,000 crore (Rs 250 billion). The gas grid will link the eastern offshore - location of the recent discovery of seven trillion cubic feet of gas reserves by Reliance Industries and another significant discovery by Cairn Energy of UK - to the markets in the south and western India. Also, the grid will link southern markets to eastern India, which in turn will be connected to markets in the north.

Gail will lay a 1,250-km Uran-Hyderabad-Kakinada gas pipeline to connect the eastern coast to west and a 1,700-km pipeline from West Bengal through Orissa and Andhra Pradesh to Chennai. It also plans to lay a 1,000-km gas pipeline from West Bengal via Bihar and Uttar Pradesh to Jagdishpur, the terminating point of the existing HBJ natural gas pipeline.

The state-run firm will also lay the 1,290-km Hazira-Uran-Bangalore pipeline, 450-km Kochi-Kasargod-Mangalore pipeline, 370-km Mangalore-Hasan-Bangalore pipeline and 340 km Bangalore-Chennai pipeline.

Earlier, Gail and Hindustan Petroleum Corporation formed a joint venture company to invest up to Rs 1,000 crore in distribution and marketing of auto liquid petroleum gas and compressed natural gas in Andhra Pradesh. The joint venture company, named Bhagyanagar Gas, will have Gail and HPCL as equal partners with 22.5% equity stake. The Andhra Pradesh government will take 5% stake and the remaining 50% holding will be offloaded to a strategic investor and financial institutions. The joint venture company will distribute and market natural gas for use in residential, commercial, industrial and automotive sector, auto LPG and any other gaseous fuel. It will set up 34 retail auto LPG stations in Tirupati and Hyderabad and supply piped natural gas for domestic use in Vijayawada.

Gail is said to be in talks with Shell for buying equity stakes in two gas distribution companies in Egypt.