Two-phased strategic disinvestment for BPCL likely

The government may consider two-phased disinvestment for public sector oil refiner and retailer Bharat Petroleum Corporation Ltd (BPCL), if the initial strategic sale of the entire 53.29 per cent government stake in the company fails to get requisite response.

The government may sell half or around 26-27 per cent of its share first and consider complete exit from BPCL at a later stage. Image source: Reuters

The government may consider two-phased disinvestment for public sector oil refiner and retailer Bharat Petroleum Corporation Ltd (BPCL), if the initial strategic sale of the entire 53.29 per cent government stake in the company fails to get requisite response. According to official sources, there is fear that no company, including global majors, may commit to invest close to Rs 1 lakh crore required to complete the transanction at one go. Thus, the government may sell half or around 26-27 per cent of its share first and consider complete exit from BPCL at a later stage when the valuation improves after the fund infusion by the strategic investor.

The government has tried this model earlier during the strategic disinvestment of metal and mining PSUs -- Hindustan Zinc Ltd and BALCO. Then Atal Bihari Vajpayee government had retained minority shareholding in these PSUs after sale and change of management control. "The strategic sale of BSNL would require investors to put in close to Rs 1 lakh crore. While large global oil corporations have the financial muscle to commit such kind of investment, nobody would like to take such a huge risk at a time when oil markets are subdued and there is a gradual shift in energy mix towards renewables and electric mobility," said a top official of oil PSU on condition of anonymity.

The Disinvestment Department (DIPAM) has started the process to appoint advisors for the sale of entire government stake in BPCL. While the mandate of advisors is to come up with fair valuation, identify investors and close the deal, sources said they might also present two scenarios -- one where 53.29 per cent stake is sold to a strategic investor, and the other where strategic investor will pick up half of this and take the management control by virtue of having the largest shareholding.

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In the second scenario, the government will continue with up to 26 per cent holding in BPCL, a portion of which it might dilute when the strategic investor comes up with an open offer. It may also keep a portion for sale at a later stage at higher valuations after the investor pumps in money and lets it grow. The government stake is worth over Rs 60,000 crore at the prevailing price of BPCL shares on the BSE. If the buyer has to further acquire 25 per cent share in an open offer as per the takeover code, the total amount will rise close to Rs 1 lakh crore. This is considered too high even by international standards.

On its part, the 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 and Shell. But with the global oil market facing a slump with demand not growing despite supply squeeze, the appetite for a large acquisition becomes difficult. While no Indian company looks like mobilising such huge funds for BPCL buy, industry experts indicated that companies from Russia and the Gulf 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 could be an attractive buy for firms, ranging from Saudi Aramco to French energy giant Total, which are vying to enter the world`s fastest-growing fuel retail market, where BPCL has significant presence. Alternatively, the government could also keep other oil PSUs, like Indian Oil Corporation (IOC) and OIL India, on a standby to go in for share buybacks in the event strategic sale to a private partner having 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. The government proposes to raise Rs 1.05 lakh crore from disinvestment in this 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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