BPCL stake sale may get delayed over falling oil prices, market crash

As confidence on equities declines, large oil producers may hesitate to loosen their purse strings, thereby impacting valuations too

A steep correction in stock markets, as well as in crude oil prices, may not be good news for the government’s plan to divest Bharat Petroleum Corporation (BPCL). The BPCL stock, which had seen a high of Rs 549.70 in November outperforming markets on expectations of value unlocking with the government selling its majority stake and garnering high valuations, however, has continued corrected thereafter.

After initial euphoria, concerns had erupted on what valuations the stock could garner if BPCL’s Numaligarh refinery was not part of stake sale. But the correction in the broader indices, against the backdrop of global slowdown concerns led by coronavirus outbreak, has been a major reason for further correction in BPCL’s stock price.

The weakness and lower appetite for equities and investors seeking safe havens are not a favourable time for any stake sale. Since the same can have a bearing on valuations, the stake sale may garner lower funds for the government. This also means the divestment process may get delayed, feel experts. Nitin Tiwari at Antique Stock Broking says the market conditions need to be watched, even as falling crude prices is a positive for BPCL’s fundamentals.

The lack of consensus among the Organization of the Petroleum Exporting Countries nations regarding oil production cuts, apart from concerns on global slowdown on the back of coronavirus breakout, has led to a steep correction in Brent prices to near-20-year lows on Monday. This bodes well for the Indian crude basket and oil marketing companies (OMCs) such as BPCL.

India, which is one of the largest importers of crude oil, is estimated to have savings on oil imports to be around $30 billion in 2020-21 if there is no significant uptick in global demand, feels Acuité Ratings & Research.

A lower import bill also means reduced risk of subsidy burden and fewer chances of government intervention on fuel retail prices. Thus, while marketing margins are likely to remain firm, the demand for fuel should also continue to remain healthy. Not surprising, the BPCL stock closed 5.2 per cent up on Monday, even as Sensex tanked by 5.17 per cent.

Lower oil prices though may benefit OMCs. But it is not good news for the oil and gas sector. Morgan Stanley Research says the decline in oil prices will negatively impact the capital expenditure outlook for oil-related sectors as well as oil producing countries.

Lower crude prices mean that even large players, which are potential acquirers of the government’s stake in BPCL, will be under stress. The government was to invite global oil producers to bid for its stake in BPCL.

At a time when their profits are under stress, it is unlikely that large petroleum majors will loosen their purse strings, says an analyst at a domestic brokerage. Morgan Stanley, too, points out that credit markets in the US, as well as emerging market oil producers, will likely react negatively, leading to further tightening of financial conditions as oil prices plunge.