Videocon Industries is likely to take a tax hit of R3,800-5,100 crore on a potential sale of its 10% stake in Mozambiques Rovuma basin, unless it is able to push through a deal before the start of the new year when the African countrys recently-amended corporate tax regime takes effect.
The parliament in the southern African nation recently amended its corporate income tax regime, stipulating sales of Mozambican assets held by non-resident entities will be taxed at 32% without consideration for the period they were held. Up to now, the sale of local assets belonging to foreign companies have been taxed on a progressively declining basis, depending on the length of time they were held.
Videocon, which invested $100 million to buy the stake in Mozambique in 2008, had valued its 10% stake in the gas block at $2.26 billion or R12,479 crore in August. Reports have said it is in talks with Dutch oil & gas major Shell over a $3-billion deal.
If a deal goes through in the $2.2-$3 billion price range, Videocons capital gains on the sale will be reduced by $690 million to $997 million. In comparison, at the 12.8% rate that was applied to capital gains on the buyout of Cove Energy by Thailands PTT Exploration and Production, Videocon would have had a tax outgo of just $281 million to $371 million.
The amended law takes effect on January 1 next year, but sources said a deal was unlikely to close before the deadline.
Even if they announce the deal this week, it is unlikely that the deal will be closed before the Mozambique governments January 1 deadline, said a managing partner of a global audit and consultancy firm on the condition of anonymity as the person is not authorised to comment on individual deals. It will be difficult to fast track regulatory and governmental approvals even if the buyer and seller fast-track negotiations from their end.
Mozambique will treat the deal to be under the purview of the new tax laws as the closing of the deal will most likely happen in 2013, the person added. When contacted, Videocons chairman Venugopal Dhoot declined to comment, saying he needs further clarity on the amendment. Videocon is being advised by consultancy firm KPMG on the sale.
The companys diversification from a consumer electronics maker to a multi-business group centered on hydrocarbon exploration has put a heavy debt burden on its balance sheet. At