BPCL, Bina Refinery merger plan gets DIPAM go-ahead

After divestment-bound Bharat Petroleum Corporation (BPCL) acquired Oman’s state-owned petroleum investment company OQ’s entire stake in the Bina Refinery project in June this year, the company has now got clearance from the Department of Investment and Public Asset Management (DIPAM) for the merger of the refinery with BPCL.

BPCL also acquired Madhya Pradesh government’s stake in Bharat Oman Refineries (BORL) or Bina Refinery in the form of convertible share warrants for Rs 72.63 crore two months ago. The merger is likely to bring synergy in terms of raising the operational and financial efficiency of BPCL, including crude oil procurement, and the working capital requirements.

According to sources aware of the development, the proposal was cleared by DIPAM early this week on the condition that ‘the merger should not affect the divestment process’.

DIPAM Secretary Tuhin Kanta Pandey did not respond to messages and calls from Business Standard. 

The company’s board had also approached the Ministry of Corporate Affairs (MCA). An MCA clearance is expected to take at least six to nine months, which is not likely to impact the divestment process. A source added that the petroleum ministry clearance for the merger is also expected soon.

BORL was incorporated in 1994 as a joint venture between BPCL and OQ (formerly known as Oman Oil Company). On June 30 this year, BPCL paid Rs 2,399.26 crore to OQ to acquire its 36.62 per cent stake in BORL. BORL and the said shares have been transferred to BPCL. The Government of Madhya Pradesh was also a stakeholder in the company holding 26.9 million convertible share warrants in BORL, which BPCL bought two months ago, according to a source in the know.

When asked about the planned merger, BPCL’s Director (Finance) Vetsa Ramakrishna Gupta told Business Standard that it would bring cohesion to the company’s operations. “It would become one more refinery from a standalone point of view. Our crude oil procurement would become centrally operated at the BPCL level,” said Gupta. 

BORL’s crude oil intake in 2020-21 (FY21) was 6,190 thousand metric tonnes, with average capacity utilisation of 79.4 per cent.

“BORL is a separate entity today, so there is a high cost of borrowing. Once it merges, the cost of borrowing would come down. We are planning some forward integration as well. It would be easier to carry out this forward integration at Bina Refinery," he added, without responding to the DIPAM clearance.

The government’s plan is to sell its entire 52.98 per cent stake in BPCL with the transfer of management control to a strategic buyer and the divestment process is expected to be completed this fiscal year. Based on the current market capitalisation of Rs 85,392.63 crore, the value of government shares in BPCL is likely to be around Rs 45,241 crore.

BORL had reported revenue from operations of Rs 35,419.77 crore in FY21, compared with Rs 41,940.96 crore clocked in the previous year. The net loss for FY21 stood at Rs 76.35 crore, compared with a net loss of Rs 803.50 crore in 2019-20.