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Tuesday, December 01, 2020

Bharat Petroleum sell-off: Why bidding has been low profile

What is the state of the disinvestment process of BPCL, which is a key component of the government's plans to raise Rs 2.1 lakh crore through disinvestment this fiscal?

Written by Karunjit Singh , Edited by Explained Desk | New Delhi | Updated: November 21, 2020 7:30:29 am
Bharat Petroleum, Bharat Petroleum divestment, Bharat Petroleum news, BCPL divestment, Bharat Petroleum acquisition, Indian ExpressWorkers wait for customers at a Bharat Petroleum Corp. gas station in Mumbai. (Bloomberg Photo: Dhiraj Singh, File)

The disinvestment process of Bharat Petroleum Corporation Ltd has moved on to the second phase, with the government having received “multiple” expressions of interest for its 52.98% stake in the country’s second largest fuel retailer. We examine the state of the disinvestment process of BPCL, which is a key component of the government’s plans to raise Rs 2.1 lakh crore through disinvestment this fiscal.

Who are the interested parties?

Currently, only the Vedanta Group has been confirmed as an interested party. Industry sources however have stated that two private funds have also submitted Expressions of Interest (EoI) for BPCL. Global oil majors British Petroleum, Total, Rosneft, ADNOC and Saudi ARAMCO, who were said to be interested in investing, have not submitted EoIs. Experts noted that given the low level of participation BPCL was likely to result in a low valuation. 📣 Express Explained is now on Telegram

Why has there been low interest?

Experts say the impact of the Covid-19 pandemic and subsequent crash in global crude oil prices has put a strain on the finances of most global oil majors. The price of crude oil fell sharply as a result of the fall in the demand for petroleum products across the world as countries imposed sever restrictions on travel.

“Due to the Covid-19 outbreak and crash in global oil prices, global oil majors have cut their capex plans in general leading to a lower emphasis on acquisitions. Major deals which were being anticipated have not happened so interest in new acquisitions is low”, said Abhijit Bora, analyst at Sharekhan by BNP Paribas.

Planned investments by Saudi ARAMCO into Reliance Industries and the Ratnagiri refinery complex have seen delays.

What is next?

Experts noted that the government may rope in other public sector undertakings like ONGC and Indian Oil to participate in another round of bidding for BPCL if it doesn’t receive a high enough valuation from the current set of interested parties. Under the terms of the current bidding process, PSUs were not been permitted to participate in BPCL’s disinvestment process. An expert who did not wish to be quoted said that if a combination of ONGC and IOC acquire the government’s stake in BPCL at a higher premium than what is being offered by private sector players, they would likely witness a decline in their share prices.

Analysts said it was not likely that the government would put off the disinvestment process of BPCL because of a lack of interest as it needed the proceeds from the sale to shore up its fiscal deficit.

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