Dull response to BPCL sale may derail divestment goal

Industry:    2020-11-21

Investors are not showing much interest in the sale of the government’s 53% stake in Bharat Petroleum Corp. Ltd (BPCL), which is expected to fetch the Centre around ₹45,000 crore. The privatization process could thus well be derailed, said investment bankers aware of the divestment process.

“Till a year ago, global energy majors were holding discussions for the BPCL stake sale. However, given the current situation and the muted response, it won’t be surprising if no one bids for BPCL in the final round,” said an investment banker who works on energy deals seeking anonymity.

Till last October, Saudi Aramco, Rosneft, Kuwait Petroleum, ExxonMobil, Shell, Total SA, and Abu Dhabi National Oil Co. were reported to be holding talks with the Centre on BPCL’s stake sale.

On Monday, the Centre said it has received expressions of interest (EOIs) from “several” domestic and international investors for BPCL’s stake sale. Vedanta Group and two US funds have reportedly submitted their EOIs. “Vedanta’s EoI for BPCL is to evaluate potential synergies with our existing oil and gas business. The EoI is at a preliminary stage and exploratory in nature,” Vedanta Ltd’s spokesperson said in an emailed response.

Analysts are, however, questioning Vedanta’s fiscal position for the acquisition. “While Vedanta on a consolidated basis is not very levered, the key question has been the leverage at the unlisted parent and the inter-company loans to the parent (currently at $1bn). In this context, we struggle to see how Vedanta will secure funding,” said JP Morgan in an 18 November note.

Funding for global energy majors could be an impediment considering that most are facing challenges such as high write-offs due to low oil prices, reduced production, and capital expenditure.

In the wake of the pandemic, the government had extended the deadline for preliminary EoI in BPCL four times this year.

“Globally the environment for energy companies is challenging. Covid-19 has dealt a blow to their profits, but governments are becoming increasingly environment-conscious, forcing these companies to rethink their investment strategies. The tepid response for the BPCL stake sale is a result of that,” said an analyst, also seeking anonymity.

On Tuesday, the UK government announced a ban on petrol and diesel cars by 2030 as part of its £12 billion green agenda, out of which £1.3 billion will be spent on setting up charging points for electric vehicles at homes.

Privatization of BPCL is essential for meeting the record ₹2.1 trillion target the finance minister has set from disinvestment proceeds in the budget for 2020-21.

The qualifying bidders in the first EoI phase will be asked to make a financial bid in the second round. Public sector undertakings are not eligible to participate in the privatization.

The qualifying bidder will not only have a controlling stake in BPCL, but will also get access to 25.77% market share in India’s fuel retailing segment, along with 15.3% of India’s total refining capacity. BPCL operates four refineries in Mumbai, Kochi, Bina, and Numaligarh in Assam, with a combined capacity of 38.3 million tonnes per annum.

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