BPCL Privatization Pushed to Next Financial Year

With less than 3 months to go for the conclusion of FY22, it looks increasingly unlikely that the BPCL divestment will happen in the current fiscal. Clearly, the sale process of calling expression of interest and finalizing of bids has not happened at the desired pace.

If the BPCL divestment gets put off, then it is likely to impact disinvestment revenues for the current financial year.

It may be recollected that in FY21, the government had set a target of Rs.210,000 crore as divestment revenues while it has set Rs.175,000 crore as divestment revenues for FY22.

While divestments fell drastically short of the target in FY21, it look like FY22 could end up with a similar situation. First, there were doubts raised over completing the LIC IPO before March. Now it looks like even BPCL may not happen this fiscal.

BPCL currently has a market cap of Rs.84,700 crore and the government holds 52.98% in BPCL which it wanted to fully hive off. The government was targeting to raise up to Rs.60,000 crore from it stake in BPCL, but at the current valuations of BPCL, that almost looks impractical. But what exactly delayed the BPCL divestment story?

Firstly, the government has not been able to agree on the valuations suggested by the investment bankers. Secondly, the expressions of interest have already come but the final bids are yet to be called for with less than 3 months of this fiscal remaining.

In addition, due to its large borrowings, BPCL divestment will also require the approval of its lenders. In the midst of all these challenges, the Unions are protesting against divesting BPCL too cheap.

As of now, Vedanta as a strategic investor and Apollo Global and I-Squared Capital as P/E investors are the only expressions of interest that have come in for the 52.98% stake owned by the government.

However, many of the large energy companies had to take huge write-offs on account of the pandemic and that reduced their appetite for inorganic bids. Of course, the winning bidder will get a huge boost to its oil franchise.

For example, BPCL has 25.77% of the fuel retailing market in India. In addition, BPCL also has 15.3% of the refining capacity in India. So, effectively it is a strong downstream franchise comprising of one-sixth of India’s fuel retailing capacity and one-fourth of India’s oil refining capacity. BPCL has sold its stake in Numaligarh Refinery and fully acquired Bharat Oman Refinery from its JV partner.

The one moot point remains the stake held by BPCL in Indraprastha Gas and Petronet LNG and whether that will also happen before the divestment.

In both the cases, the government and SEBI are yet to clarify if there will be an exemption to the bidder from making an open offer to the shareholders of IGL and Petronet LNG as the ownership structure will change significantly. That remains an open issue as of now.