As revenue dips in Covid times, govt sets ball rolling for BPCL sale

The government is confident of completing the privatisation of Bharat Petroleum Corporation (BPCL) within 2020-21, as it scrambles to gather revenues in Covid-19 times.

Officials are soon expected to hold another round of talks with potential acquirers of BPCL, including Saudi Aramco and Rosneft, among others, and are moving ahead with the sale of BPCL’s stake in Numaligarh Refinery.

“We had slight disruptions due to Covid-19, but now we are on track regarding BPCL,” a top government official told Business Standard. The official said meetings with potential buyers would soon be held through videoconferencing. This follows a round of meetings that took place late last fiscal year.

Additionally, sources have confirmed that state-run Oil India (OIL) has written to the BPCL management stating that a consortium of OIL and Engineers India (EIL) is keen to take up a 48 per cent stake in Numaligarh refinery. Of this 48 per cent, around 10 per cent will be EIL’s share. This may cost the consortium over Rs 5,500 crore. The hiving off of BPCL’s refinery in Assam was one of the pre-conditions of the privatisation of the state-owned oil marketing company, as approved by the Cabinet last year.

Earlier, OIL had written to the Department of Investment and Public Asset Management (Dipam) that the company was keen on acquiring BPCL’s stake in Numaligarh. Interestingly, the Assam government had given a no-objection certificate to the NRL deal on condition that another 13.65 per cent stake in NRL will be sold to the state, increasing its total stake in the project from 12.35 per cent to 26 per cent.

At present, BPCL holds 61.65 per cent and OIL another 26 per cent in NRL. After the acquisition, OIL’s individual share in the company is expected to grow to around 64 per cent. Sources indicated that Deloitte, the transaction advisor for BPCL’s planned privatisation, have contacted the BPCL management as well seeking financial details of NRL.

Regarding BPCL itself, Indian and global majors are still showing interest and likely to be part of the bidding process, in spite of the severe global slowdown due to Covid-19 and crude oil prices touching historical lows recently. In late April, US WTI Crude went below $0 a barrel (bbl) for the first time and Brent crude slipped below $20/bbl. Prices have recovered since then with WTI and Brent both trading above $40/bbl.

For 2020-21, the divestment target is a staggering Rs 2.1 trillion. The biggest deals are expected to the initial public offering of LIC and the BPCL deal. Other planned privatisation candidates include Air India, Concor, and Shipping Corp.

“Successfully concluding the BPCL deal will not only get in some much-needed revenues to the exchequer, but will also be a signal to Indian and global investors regarding the seriousness of the government’s privatisation plans,” said a second official.

Beyond this year’s privatisation candidates, the Cabinet is soon expected to approve the new ‘strategic sector’ policy and many more companies, including state-owned banks, are expected to come up for privatisation in the coming years.

The slowdown due to the Covid-19 crisis and the lockdown have already put paid to any expectation of tax revenue targets being met. The Centre now hopes that divestment and sources of non-tax revenue like dividends from public sector banks and units and the RBI will give it much-needed resources to some extent.

July 31 is the extended deadline for the submission of expression of interests (EOI) in BPCL and is likely to be extended further. According to Friday’s closing price, BPCL is now valued at 96,293 crore, which would put the centre’s 52.98 per cent stake at Rs 51,016 crore.

However, the transaction advisors are confident that most bids would come at a healthy premium which would value BPCL at Rs 1.2 trillion or upwards, said a recent report by Emkay Global.

Some of the global oil giants that may be part of the bidding include Saudi Aramco, Rosneft, Adnoc and ExxonMobil. After becoming debt-free, Reliance Industries is expected to be in the race, partnering with BP.

Only private players with a net worth of over $10 billion will be able to participate in the bidding. The selected bidder will have to make an open offer to public shareholders for acquiring another 26 per cent at the same price. Based on the existing guidelines, acquisition of an aggregate of 25 per cent or more shares or voting rights in a listed entity would trigger an open offer.

The buyer will be getting access to diversified business areas of the company, including refinery, retail, lubricants, aviation, gas and liquefied petroleum gas (LPG). BPCL has a share 15 per cent of the country’s refining capacity, 25.77 per cent in retail market, 25.67 per cent in LPG, 24.94 per cent in aviation, 22.29 per cent in lubricants and over 50 LNG consumers.