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Thursday, November 26, 2020

BPCL disinvestment sees a new turn

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The Bharat Petroleum Corporation Ltd.’s disinvestment process has now entered its second phase. The government has received several expressions of interest for a 52.98% stake in Bharat Petroleum Corporation Ltd. The state of the disinvestment process of the country’s second largest fuel retailer is crucial to the government’s plans to raise Rs 2.1 lakh crore through disinvestment this fiscal.

Who are the interested parties in this divestment?

As of now, the Vedanta Group is the only committed interested party while the Industry sources claim that along with Vedanta two others private funds have submitted Expressions of Interest (EoI). Other companies such as Global oil majors British Petroleum, Total, Rosneft, ADNOC and Saudi ARAMCO were said to be interested in investing but have still not submitted their EoIs. It is quite obvious now that owing to the low level of participation by investors, BPCL is likely to witness a low valuation.

But, why are people not interested in BPCL?

According to the experts, the impact of the novel coronavirus pandemic followed by the subsequent crash in global crude oil prices has taken the finances of most global oil majors by their neck, as they struggle to breathe. Imposition of severe lockdowns in countries across the world to contain the virus lead to a fall in the demand for petroleum products. This in turn, led to a sharp fall in the price of crude oil.

Abhijit Bora, analyst at Sharekhan by BNP Paribas, says, “Due to the corona virus outbreak and crash in global oil prices, global oil majors have dropped or reduced their capex plans in general leading to a lower emphasis on acquisitions and major anticipated deals have not happened so interest in new acquisitions is low”.

The planned investments into Reliance Industries and the Ratnagiri refinery complex which were to be done by Saudi ARAMCO have also seen prolonged delays.

Where does this take us? What is next?

There is a high probability that the government may rope in other public sector undertakings (PSUs) such as Indian Oil and ONGC. These new PSUs would now be asked to participate in another round of bidding for Bharat Petroleum in case the current set of interested parties fail to give in a high enough valuation.

The Public Sector Units were not been allowed to participate in the oil major’s disinvestment process because of the restricted terms and conditions of the current bidding process.

It is also expected by market experts if a combination of IOC and ONGC take over the government’s stake in BPCL at a premium that is more than what is being offered currently by the private sector parties, they may see a steep decline in their share prices. Moreover, it is highly unlikely that the government would any further delay or suspend the disinvestment process just because of a lack of interest because it is in dire need of cash inflow from the proceeds of the BPCL sale to shore up its fiscal deficit.

 

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