Quippo, Oil & Gas Service Sector and A New PE Hotbed

Quippo Oil & Gas, a subsidiary of Quippo Infrastructure Equipment promoted by SREI Infrastructure Finance, is planning to put Rs.2400 Cr. over next two years in buying onshore rigs, off-shore supply vessels and pipe-laying barges.

Quippo Oil & Gas currently owns two onshore drilling rigs and one offshore pipeline-laying barge (bought for $120 Mn.) The plans are to deploy these to India & Malaysia. This Business Standard article reemphasises a global trend in O&G service sector.

There is a shortage of rigs across the world and its impact is being felt in India as well. The Oil & Gas service sector market is booming globally with M&A/PE activity.

Globally PE firms are active in the O&G service market due to crash and easing valuations, specially in the mid-market. Tight credit markets have put brake on largecap deals but middle market is growing 50%.

Richard Spears, VP of energy analysis and advisory firm Spears & Associates Inc. says "Right now, we have projects for 15 deals under way, when last year, at any one time, we had six or seven." Investors and companies hire Spears to analyze businesses during the due diligence process of a transaction. Spears said his private equity clients were sizing up businesses in well completion services, land and offshore drilling and production, and other parts of the oilfield services sector.

Some of the recent deals in the sector include First Reserve Corp buyout CHC Helicopter Corp for $1.5 Bn., US buyout firm Castle Harlan's Anchor Drilling Fluids US for $250 Mn.

Analyst Bill Herbert of research firm Simmons & Co said expects PE firms to snap up more small-cap oilfield service companies with either international franchises or technology that can be exported to international markets.

It will not be surprising to see some of the Infrastructure Funds moving in, on the sector.

GIC and IDFC Private Equity buy 31% stake in Quipo Infrastructure for Rs. 150 crores to fund growth plans

GIC Special Investments, Singapore and IDFC Private Equity have picked up around 15.5% share each, totaling 31%, in Quipo Infrastructure Equipment Limited (QIEL) for Rs. 150 crores.

Quipo has been promoted by the SREI Group, one of the largest equipment retail companies in the country. It will use the funds to part-finance a capital expenditure plan of over Rs. 3400 crores over the next two years. Following this, the paid-up equity capital of the company is estimated to be around Rs. 90 crores with a total net worth around Rs. 225 crores. SREI’s shareholding in Quipo has come down to 15.5% from 22%. Dutch FMO and SwedFund hold around 22%, while other shareholders like Ingersoll Rand and other venture capital funds hold the balance.

Apart from internal cash generation, the company plans to go in for various debt options to fund its capex plans. Around Rs. 1200 crores of debt will be raised next fiscal. A large part of the capital expenditure of almost Rs. 2000 crores will go towards building almost 6000 telecom towers across the country. Quipo, through its subsidiary has been involved in the renting of towers to leading telecom operators.

The company is expected to gross a turnover of around Rs. 200 crores in the current fiscal and the new business is likely to double revenues from next year.

Read the article in DNA Money.