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Time running out for India’s Bharat Petroleum sale
The government had planned to find buyers for majority stakes in BPCL and national carrier Air India in the April 2020 to March 2021 financial year, but is yet to shortlist bidders. Delhi expected to raise a record 2.1 trillion rupees ($28.7bn) from stake sales in state-controlled companies in 2020-21 but has so far raised less than 7pc of this amount, at just Rs138bn. The government netted Rs503bn from such sales last year, according to the finance ministry.
Interest in BPCL has been moderate, with only Indian private-sector firm Vedanta and two US investment funds submitting bids. Potential suitors including state-controlled Saudi Aramco, Russia’s state-run Rosneft and US and European majors have declined to place bids.
The government is yet to validate the three bids, which it must do before seeking financial offers. Bidders need to do extensive due diligence of BPCL, which is involved in several businesses areas and has a complex corporate structure. They need guarantees from the government that it will not interfere in the company after the sale, a process that may take several months.
The BPCL acquisition also comes with several pre-conditions that may limit the buyer’s ability to reform the business. The government is selling a 53pc stake in the company but the buyer must also acquire an extra 26pc from the public, according to securities regulations. This could take the required investment to around $10bn, based on BPCL’s market capitalisation of about $11.5bn and taking into account Delhi’s aim to achieve a premium on the sale.
Air India’s sale has been delayed because of sparse interest in the debt-laden airline. Foreign investors are concerned about investing in India after the supposedly business-friendly BJP government refused to abide by international arbitration awards after losing tax demand cases involving UK upstream firm Cairn Energy and telecom company Vodafone.
India’s oil demand has been hit by Covid-19, raising further questions about the attractiveness of BPCL to investors. Demand for diesel is likely to decline by 11pc to 1.51mn b/d in 2020-21 from 1.69mn b/d a year earlier, with gasoline use expected to fall by 8pc to 640,500 b/d from 694,000 b/d, according to oil ministry forecasts.
India has recorded more than 10.2mn Covid-19 cases, second only to the US. The economy is in a recession after contracting for two consecutive quarters, including a 7.5pc decline in July-September.
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