Govt to sell 100% stake in BPCL; companies with $10-bn net worth can bid

Based on the current market capitalisation of Rs 87,388 crore, the government stake of 52.98 per cent in BPCL is valued at around Rs 46,300 crore. This sale is key to meeting the government’s disinvestment target of Rs 2.1 trillion in the financial year 2020-21. So far, the disinvestment exercise has fetched the government Rs 34,845 crore during the current financial year.

The Department of Investment and Public Asset Management (Dipam) made it clear that none of the public sector undertakings will be allowed to participate in the proposed stake sale.

BPCL employees, however, can bid. They will be given the option to match the highest offer if their bid is within the 10 per cent band.

The selected bidder will have to make an open offer to public shareholders for acquiring another 26 per cent. The open offer price (payable in Indian rupee) will be the highest of the negotiated price under the sale, weighted average price paid by the acquirer and persons acting in concert in 52 weeks preceding the public announcement for open offer, highest price paid by the acquirer for any acquisition during 26 weeks preceding the announcement or the weighted average price over 60 trading days prior to the date of announcement. Under the guidelines of the Securities and Exchange Board of India (Sebi), the acquisition of an aggregate of 25 per cent or more shares or voting rights in a listed entity would trigger an open offer.

ALSO READ: BPCL valuation too high, Vedanta will evaluate bid: Anil Agarwal

chartUnlike the Air India sale, employees would not be given any stock option in the case of BPCL. But they can bid. For that, at least 15 per cent of the employees should participate in the bidding process. They can form a consortium with companies or financiers, but such partners cannot bid separately.

The strategic disinvestment includes sale of the government’s entire stake in BPCL comprising 1.14 billion equity shares and 52.98 per cent of BPCL’s equity share capital. The divestment will also mean transfer of management control. BPCL’s equity of 61.65 per cent in Numaligarh Refinery will be sold separately to a state-run oil and gas company, the bidding for which will be conducted in two stages. For the BPCL sale, bids will be allowed from consortiums of maximum four players, with the lead member having at least 40 per cent holding in the partnership. Each member in a consortium must also have a minimum net worth of $1 billion. The transaction adviser for the deal is Deloitte Touche Tohmatsu India.

The investor will get access to diversified business areas of the company – including refinery, retail, lubricants, aviation, gas and liquefied petroleum gas (LPG). BPCL’s share of the country’s refining capacity is pegged at 15 per cent, while it has 25.77 per cent in the retail market, 25.67 per cent in LPG, 24.94 per cent in aviation and 22.29 per cent in lubricants. With more than 50 LNG consumers, BPCL’s total refining capacity stands at 38.3 million tonne per annum (MTPA). According to the data available with the Petroleum Planning and Analysis Cell, BPCL has 15,184 fuel retail outlets and 58 ATF stations across the country. The company has investments in upstream sector too with participating interests in 25 blocks. While 13 of these are located in India, another 12 are overseas.

BPCL valuation too high, Vedanta will evaluate bid: Anil Agarwal

Mining baron Anil Agarwal, who was among the first to evince interest in bidding for Bharat Petroleum Corp Ltd (BPCL), says valuation of the firm is too high and his company Vedanta will evaluate bidding for it when the final bid document is out.

At the close of trading on Friday, BPCL had a market capitalisation of Rs 92,464.40 crore. At this price, the government's Rs 52.98 per cent stake that is being sold in the country's largest privatisation exercise is worth about Rs 49,000 crore.

The acquirer will also be required to make an open offer for another 26 per cent stake from minority shareholders which will cost another Rs 24,000 crore.

"We certainly are interested in bidding but the valuations are too high," Agarwal told PTI here. "The bid document is not yet out and we will carefully evaluate bidding once the offer document is out."

He said share price has moved up 40-50 per cent since the time the government announced its plan to sell stake in November last year.

"There are lot of synergies BPCL has with our business. I am the largest private oil producer in the country" and BPCL has refineries to process it and a network of petrol pumps to sell fuel produced from it, he said. "We will evaluate bidding (for BPCL), let's see."

The government plans to sell its entire 52.98 per cent stake in BPCL that will give buyers ready access to 14 per cent of India's oil refining capacity and about one-fifth of the fuel market share in the world's fastest-growing energy market.

"We are in oil business. We produce 30 per cent oil and gas of the country and this has natural synergies with BPCL," Agarwal said.

A two-stage bidding process is to be followed for privatisation of BPCL, wherein request for proposal or RFP in the first stage will be followed by due diligence-cum-bidding by qualified bidders in the second phase.

Privatisation of BPCL is essential for meeting the record Rs 2.1 trillion target Finance Minister Nirmala Sitharaman has set from disinvestment proceeds in the Budget for 2020-21 fiscal that starts April.

BPCL operates four refineries in Mumbai (Maharashtra), Kochi (Kerala), Bina (Madhya Pradesh) and Numaligarh (Assam) with a combined capacity of 38.3 million tonnes per annum, which is 15 per cent of India's total refining capacity of 249.4 million tonnes.

While the Numaligarh refinery will be carved out of BPCL and sold to a PSU, the new buyer of the company will get 35.3 million tonnes of refining capacity.

It also owns 15,177 petrol pumps and 6,011 LPG distributor agencies in the country.

Besides, it has 51 LPG (liquefied petroleum gas) bottling plants. The company distributes 21 per cent of petroleum products consumed in the country by volume as of March this year and has more than a fifth of the 250 aviation fuel stations in India.

Oil companies seek mechanism to pass through BSVI upgrade cost

State-run Bharat Petroleum Corporation Ltd (BPCL), along with other oil marketing companies, are in informal discussions with the government for a pass-through of costs incurred over upgrading to higher emission norms. The company will roll out BS-VI fuels at all its outlets starting March this year.

“We have represented that we should be compensated for what we have invested,” R Ramachandran, director for refineries at BPCL, said today.

He added if these investments were to be converted to litre cost, it would range between 70 paise to Re 1.30, depending on which oil company it is. “We are aspiring that it should be built into our price.”

Indian Oil Corporation Ltd (IOCL) that has currently covered around 50 per cent of its outlets already, plans to cover the entire network by mid-March.

Ramachandran said there are informal discussions between oil companies and the government for a mechanism to recover these costs. “No formal representation has been made,” the executive added. He said there was precedence in other countries where similar costs have been passed on through a special cess. For BPCL, the director said the total investment in upgrade of refineries stands at Rs 7,000 crore and 70 paise a litre may be the average cost recovery over a plant’s life.

This is not the first time oil companies have raised the cost concern over BSVI upgrade. Sanjeev Singh, chairman for Indian Oil, on January was quoted that though the exact quantum is being worked out, the increase may be anywhere between Rs 0.50-1 a litre.

Upgrade to BS VI norms is part of India’s attempt to curb air pollution by vehicles. Part of this effort, starting April this year, only BS VI fuel compliant vehicles will be permitted to be sold and registered across the country. Oil companies are expected to make BS VI fuel available to ensure a smooth transition to these new norms.

Irrespective of whether a special mechanism is allowed or not, oil executives are hopeful the market will find its own pricing over a period of time. “Then we will know if there is a return (on the investment) or it is an investment for staying in business,” Ramchandran said.

Under government rules, fuel and automobile makers have to migrate to BS VI from BS IV norms from April 1.

On the impact of the outbreak of Corona-virus, the BPCL executive added, "This is an opportunity for the Indian oil industry. China has rejected a considerable amount of crude.” The official said this has led to a significant increase in the availability of crude, including crude from African markets, allowing discounts of up to $5 a barrel to prevailing crude prices in some cases.

IOC to take a call on bidding for govt's stake in BPCL, says Sanjiv Singh

Indian Oil Corporation (IOC) will take a call on bidding for the government’s stake in Bharat Petroleum Corporation (BPCL) once it comes to the market, said IOC Chairman Sanjiv Singh.

Singh said it was still not clearly stated what was being offered. “There are media reports that Numaligarh Refinery may be carved out. Let it come and then we will see.” He was speaking on the sidelines of the launch of Purvodaya, an integrated steel hub.

He added it was internally discussed and there were advantages either way. If IOC bags it, there are advantages. In the event it doesn’t, there would still be advantages and its capital expenditure (capex) would not get saturated. IOC had its own capex plan, which it would then be free to pursue.

In November, the Cabinet Committee on Economic Affairs (CCEA) approved the sale of government stake in five major public sector undertakings (PSUs): BPCL, Shipping Corporation of India, Container Corporation of India, THDC India (formerly Tehri Hydro Development Corporation), and North Eastern Electric Power Corporation. The government would be handing over management control in each of these divestments to a strategic buyer.

BPCL, however, is the most lucrative on the government’s disinvestment list. At the current trading price, the government’s 53.29 per cent stake in BPCL is valued at close to Rs 54,400 crore. The government proposes to raise Rs 1.05 trillion from disinvestment in the current financial year and BPCL would be crucial to achieving the target.

Dharmendra Pradhan, Minister of Petroleum and Natural Gas, had said after the CCEA decision that there was a clear vision since 2014 that the government had no business to be in business, in response to questions on whether PSUs would be allowed to bid for the government’s stake in BPCL.

IOC, however, has precedence over bidding aggressively in the past.

In 2002, IOC had bagged the government’s 33 per cent stake in IBP. IOC’s bid was Rs 1,153.68 crore, which translated into Rs 1,551 a share. The other bidders for IBP were Reliance Industries, Reliance Petroleum, Royal Dutch Shell, Kuwait Petroleum Corporation, BPCL, and Hindustan Petroleum Corporation. The reserve price for IBP was Rs 337 crore.

Govt to wrap up sale of Air India, BPCL by March 2020: Nirmala Sitharaman

Finance Minister Nirmala Sitharaman on Saturday said the government would wrap up the sale of Air India and Bharat Petroleum Corporation Limited (BPCL) by March 2020, according to a news report in The Times of India.

Sitharaman also said there is a "lot of interest" among investors about the sale of Air India as seen in the international roadshows carried out by the Government.

"We are moving on both with the expectation that we can complete them this year. The ground realities will play out," Sitharaman told the Times of India.

The finance minister stated the strategic disinvestment of the two state-run companies is critical for the government to meet its disinvestment target of Rs 1 trillion for the current fiscal year.

The government had to shelve plans for Air India's stake sale earlier due to lukewarm response by investors.

The government took measures to reverse the economic slowdown at the right time and several sectors are coming out of distress, the report quoted Sitharaman as saying. She further added that the industry captains had contributed to improving their balance sheets and many of them were also mulling fresh investments.

The finance minister said she expected GST collections to revive following an improvement in sales in some segments as well as government's recent efforts to plug leakages.

On the Supreme Court's recent verdict on Essar Steel, Sitharaman said the ruling has strengthened the constitutionality and legal strength of the IBC law and it would have a significant impact on the balance sheets of banks in the next quarter.

She also claimed there were indications of revival in consumer sentiment, which was exhibited in demand of around Rs 1.8 trillion in loans from banks at the outreach programme during the festival season.

"If consumer confidence is not on way to being restored, why would you think that such an amount would have gone out as loans during the two outreach programmes started by banks? And, it is all over the country," the finance minister was quoted as saying.

BPCL sale: Indian Oil maintains interest, may bid on lower offer size

The country's largest public sector refiner and retailer, Indian Oil Corporation (IOC), may consider bidding for the Centre's stake in Bharat Petroleum Corporation Ltd (BPCL) if such a need arises and the government agrees to reduce the quantum shares on offer in the company, including a waiver from mandatory open offer.

Top official sources said that BPCL would fit well into the scheme of things of IOC, and together the entity would become a powerhouse of refining and retailing activity, which would give tough competition to other players in the field, including the global giants eyeing the Indian market.

When asked recently, IOC Chairman Rajiv Singh did not deny IOC's interest in BPCL, but said: "These are big offerings where the Government of India's entire stake is being sold."

Though the government is keen to offer its entire 53.29 per cent stake in BPCL to a strategic investor, most likely a global oil and gas giant such as Aramco, it has kept other options ready in the form of possible interest from companies such as IOC.

Official sources said that there is a fear that no company, including global majors, may commit to invest close to Rs 1 lakh crore required to complete the transaction at one go. So, if the BPCL stake sale does not evince interest from MNCs, as an alternative, the government may sell half or around 26-27 per cent of its share to another PSU such as IOC.

Market regulator Securities and Exchange Board of India (Sebi) may also extend a waiver from the mandatory open offer to minority shareholders of BPCL as it had done in the case of ONGC, picking up the entire government stake in HPCL and Power Finance Corporation's (PFC) acquisition of government stake in REC.

The Department of Investment and Public Asset Management Disinvestment (DIPAM) has already started the process of appointing advisors for the sale of the entire government stake in BPCL.

While the mandate of advisors is to come up with a fair valuation of BPCL, identify investors and close the deal, sources said they may also present two scenarios -- one where 53.29 per cent stake is sold to a strategic investor, and the other where a strategic investor will pick up half of this stake but take management control by virtue of having the largest shareholding.

In the second scenario, the government will continue with a holding of up to 26 per cent stake 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 of the holding for sale at a later stage at a higher valuation after the investor pumps in money into the company and lets it grow.

The government's 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 to close to Rs 1 lakh crore. This is considered too high even by international standards.

On its part, DIPAM is working out a plan to offload the entire government equity to a strategic partner, possibly a large overseas oil entity such as Saudi Aramco, Total, ExxonMobil or Shell. However, with the oil market globally facing a slowdown and demand not picking up despite supply squeeze, the appetite for a large acquisition becomes difficult.

While no Indian company looks like mobilising such huge funds for BPCL's acquisition, industry experts hinted that companies from Russia and the Gulf region could be targeted to get the necessary investment. This, sources said, could be done through government-to-government talks as most oil companies in those regions are state controlled.

BPCL will be an attractive buy for companies ranging from Saudi Aramco of Saudi Arabia to French energy giant Total SA, which are vying to enter the world's fastest-growing fuel retail market, including entry in retail space where BPCL has significant presence.

Alternatively, the government could also keep other oil PSUs such as IOC and OIL India on a standby to go in for share buybacks if strategic sale to a private partner meets with little success.

BPCL operates four refineries in 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 the current financial year. It had exceeded asset-sale targets of Rs 1 trillion in FY18 and Rs 80,000 crore in FY19.

Why BPCL's strategic sale does not need a Parliamentary approval

Ahead of a proposed move to fully privatise state-owned fuel retailer Bharat Petroleum Corp Ltd (BPCL), the government had quietly repealed the legislation that had nationalised the company, doing away with the need to seek Parliament nod before selling it off to private and foreign firms.

The Repealing and Amending Act of 2016 had annulled "187 obsolete and redundant laws lying unnecessarily on the Statue-Book" including the Act of 1976 that had nationalised erstwhile Burmah Shell.

"The Act has been repealed and there is no need for a Parliament approval for strategic sale of BPCL," a senior official said.

Keen to get multi-nationals in domestic fuel retailing to boost competition, the government is mulling selling most of its 53.3 per cent stake in BPCL to a strategic partner.

Privatisation of BPCL will not just shake up the fuel retailing sector long dominated by state-owned firms but also help meet at least a third of the government's Rs 1.05 trillion disinvestment target.

BPCL at the close of market on October 4 had a market capitalisation of about Rs 1.11 trillion and a government stake sale could get upwards of Rs 60,000 crore including a control-and-fuel-market-entry premium, officials said.

The Supreme Court had in September 2003 ruled that BPCL, as well as Hindustan Petroleum Corporation Ltd (HPCL), can be privatised only after Parliament amends a law it had previously passed to nationalise the two firms.

The ruling had followed a plan of the then BJP-led NDA government headed by Prime Minister Atal Bihari Vajpayee to privatise the two firms.

The apex court ruling had stalled the plan to sell 34.1 per cent out of government's 51.1 per cent stake in HPCL to a strategic partner along with management control. Reliance Industries Ltd, BP plc of UK, Kuwait Petroleum, Petronas of Malaysia, the Shell-Saudi Aramco combine and Essar Oil had expressed their interest in acquiring that stake before the Supreme Court stalled the process.

But the Supreme Court mandated condition is no longer applicable, they said citing the May 9, 2016, Gazette notification following President's assent to The Repealing and Amending Act, 2016.

Besides others it listed repealing in "the whole" The Esso (Acquisition of Undertakings in India) Act, 1974, The Burmah Shell (Acquisition of Undertakings Act, 1976 and The Caltex [Acquisition of Shares of Caltex Oil The whole] Refining (India) Ltd and of the Undertakings in India of Caltex (India) Ltd] Act, 1977.

According to the Statement of Objects and Reasons for the Repeal Bill introduced in the Lok Sabha on May 13, 2015, the idea was to bring reform in the legal system by removing "incoherent and redundant laws."

"...the present proposal is to repeal 187 obsolete and redundant laws lying unnecessarily on the Statute-Book. On being enacted, it would reduce obsolete laws and bring in clarity to those for whose benefit the laws are enacted," it said.

BPCL offers attractive buy for companies ranging from Saudi Aramco of Saudi Arabia to French energy giant Total SA which are vying to enter the world's fastest-growing fuel retail market. It will not only give them 34 million-ton in refining capacity but also access to about 25 per cent share of India's fuel marketing.

BPCL was previously Burmah Shell, which in 1976 was nationalised by an Act of Parliament. Burmah Shell, set up in the 1920s, was an alliance between Royal Dutch Shell and Burmah Oil Co and Asiatic Petroleum (India).

HPCL was incorporated in 1974 after the takeover and merger of erstwhile Esso Standard and Lube India Ltd through the ESSO (Acquisition of Undertaking in India) Act passed by Parliament. The company was in January last year taken over by state-owned Oil and Natural Gas Corp (ONGC) for Rs 36,915 crore.

The Supreme Court had in September 2003 cited the ESSO (Acquisition of Undertaking in India) Act and the Burmah Shell (Acquisition of Undertaking in India) Act, 1976 and Caltex (Acquisition of Shares of Caltex Oil Refining India Ltd and all the Undertakings in India for Caltex India Ltd) Act, 1977 to rule that the government cannot privatise HPCL and BPCL without approaching Parliament for changing the Nationalisation Act.

"There is no challenge before this Court (Supreme Court) as to the policy of disinvestment. The only question raised before us whether the method adopted by the Government in exercising its executive powers to disinvest HPCL and BPCL without repealing or amending the law is permissible or not. We find that on the language of the Act such a course is not permissible at all," Justice S Rajendra Babu and G P Mathur wrote in the September 16, 2003 order "restraining the Central Government from proceeding with disinvestment resulting in HPCL and BPCL ceasing to be Government companies without appropriately amending the statutes concerned suitably."

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.

India has a total refining capacity of 249.4 million tonnes and 65,554 petrol pumps and 24,026 LPG distributors.