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BPCL sale: Asset strip, two-phased share sale proposed to make BPCL attractive
With the aim to attract a larger number of investors to take over public sector oil refiner Bharat Petroleum Corporation Ltd (BPCL), the government is looking at further stripping some assets from the parent entity while splitting the share sale plan into two phases.
Official sources said that trifurcation of BPCL’s assets may be carried out before the government’s shares are put up for sale to strategic investors. Also, the government’s 53.29 per cent in the company may be sold in two phases with only between 28-30 per cent of the equity shares to be offered in the first phase to strategic investors with transfer of management control.
“BPCL has few joint ventures where the holding of the other partner is substantial. It would be best to look at exit option from such joint ventures to avoid complications for strategic investors at a later stage,” another official with direct knowledge of the development said.
“Like a carve out for BPCL’s Numaligarh Refinery approved by the Cabinet on Wednesday, BPCL may also exit from its 50:50 joint venture with Oman Oil Company for 7.8 million tonnes Bina refinery in Madhya Pradesh before being put to sale to strategic investors,” the official added.
Oman Oil may be offered first right to take over balance 50 per cent in Bina Refinery, or Bharat Oman Refineries.
The government is trying to make BPCL best fit case for a takeover as there is fear that no company, including global majors, may commit to invest close to Rs 1 lakh crore required to complete the BPCL transaction at one go. This includes about Rs 60,000 crore for taking over the entire government stake of 53.29 per cent in BPCL and balance for an expected open offer under the takeover regulations.
So a two-phased share sale will automatically reduce the investment commitment of investors to just about Rs 30,000 crore. This would also work to the advantage of the government as it can completely exit BPCL later when the valuation of the company improves post infusion of funds by the strategic investor. With further asset strip, the strategic investor may have to shell out even lower to take control of BPCL.
The government has tried this model earlier during the strategic disinvestment of metal and mining PSUs Hindustan Zinc Ltd (HZL) and BALCO. The then Atal Bihari Vajpayee government retained minority shareholding in these companies post sale and change of management control. Even now, the government is holding on to 24 per cent stake in Container Corporation of India (ConCor) while ceding management control to a strategic investor who will control 30 per cent shareholding.
On its part, DIPAM is working out a plan to offload entire government equity to a strategic partner, possibly a large overseas oil entity like Saudi Aramco, Total, ExxonMobil, or BP. However, with oil market globally facing a slowdown with demand not picking up despite supply squeeze, the appetite for a large acquisition becomes difficult.
While no Indian company looks like mobilising such huge funds for BPCL’s buy, industry experts hinted that companies from Russia and the Gulf region could be targeted to get the necessary investment. This, sources said, could be done through government to government talks as most oil companies in the region are state-controlled.
BPCL, in present times, will be an attractive buy for companies ranging from Aramco of Saudi Arabia to French energy giant Total SA which are vying to enter the world’s fastest-growing fuel retail market including entry in retail space where BPCL has significant presence.
Alternatively, the government could also keep other oil PSUs such as Indian Oil Corporation (IOC), or OIL India on a standby to go in for share buybacks in the event strategic sale to a private partner met with little success.
BPCL operates four refineries at Mumbai, Kochi in Kerala, Bina in Madhya Pradesh and Numaligarh in Assam with a combined capacity to convert 38.3 million tonnes of crude oil into fuel. It has 15,078 petrol pumps and 6,004 LPG distributors.
After the cabinet decision, BPCL’s strategic disinvestment will proceed without inclusion of Numaligarh Refinery. With a capacity of 3 million tonnes (mt), NRL is relatively small in scheme of things at BPCL. Its separation will not have much impact on BPCL’s valuation. But if Bina Refinery is divested, almost of fourth of BPCL’s refining capacity would be out from the parent, making BPCL a lot lighter.
Sources said that it may be premature but the thinking is also to separate refining and retailing operations of BPCL as most global entities are more interested in getting a foothold in India’s fuel retailing operations than getting into fuel refining. Global companies are looking at outlet for their existing refining operations overseas and India with the tag of being third biggest fuel consumer, presents an attractive market.
The government proposes to raise Rs 1.05 lakh crore from disinvestment in the current financial year. It had exceeded asset-sale targets of Rs 1 lakh crore in FY18 and Rs 80,000 crore in FY19.
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