The government is looking to raise Rs 90,000 crore from the privatization of Bharat Petroleum Corp. Ltd (BPCL) at about double the valuation the stock is trading at, as the finance ministry seeks to benchmark the price of the fuel retailer to some of its publicly traded rivals, an official said.
The government’s target price for its 52.98% stake is also based on the value of BPCL’s assets, especially prime land in cities, the government official said, requesting anonymity.
“If anybody thinks that the government will do the BPCL valuation only on the basis of its share price, then they are wrong. The government has to look at the asset valuation also. It will also have to look at the share price of the companies in the peer group,” he said. “The government should get at least Rs 90,000 crore. BPCL’s assets are so vast, this money (Rs 45,000 crore) can easily be realized by selling BPCL’s assets without impacting the main core business.”
Besides Vedanta Group, two American funds—Apollo Global and I Squared Capital—have submitted their expressions of interest (EoIs) for India’s second-largest fuel retailer, the official said.
The department of investment and public asset management (DIPAM) is managing the privatization of the state-run refiner while Deloitte Touche Tohmatsu India is the transaction adviser.
The BPCL’s stock has underperformed market benchmarks, like some other stocks of state-run companies, despite markets hitting new highs. BPCL’s shares rose Rs 2.05, or 0.54%, to Rs 383 on Friday, while the Sensex rose 0.25% to 47,868.98.
“We believe BPCL has potential value of 2x over current market price in long term, if government offers stable taxation regime for gasoline and diesel sales, as their 16000 plus retail outlets can be valued at more that 80000-100000crore based on RIL-British Petroleum and other similar global deal on retail outlets stake sales. Moreover, on replacement cost basis refinery and terminal/depots network can potentially add enterprise value of around INR40000 crore each, over and above value from other businesses like product pipelines, LPG, industrial fuel, ATF, Lubes, gas sales and stakes in IGL and Petronet LNG,” said Gagan Dixit, Vice President, institutional equity research, Elara Securities (India) Private LTD.
“However, 2020 witnessed huge tinkering with excise duties in gasoline and diesel, which resulted in doubling of excise duty in diesel. That we believe has impacted the valuation of BPCL and raise concerns over potential bidders as costlier gasoline & diesel would help grow competitive fuels like direct LNG use on trucks, electric vehicles, CNG sales at the expense of gasoline and diesel demand growth,” he added.
This share sale is essential for meeting the government’s record Rs 2.1 trillion divestment target that the finance ministry announced in the budget for 2020-21. India has so far raised around Rs 12,225 crore from divestment proceeds this financial year.
“Disinvestment process is being undertaken by DIPAM,” a spokesperson for India’ petroleum and natural gas ministry said in an emailed response to a query, adding that the query should be sent to the “concerned department”. Queries emailed to the spokespersons for the finance ministry, DIPAM, Vedanta Group, and I Squared Capital on Monday evening remained unanswered till press time.
The successful buyer will not only have a controlling stake in BPCL but will also get access to a 25.77% market share in India’s fuel retailing segment, besides 15.3% of India’s refining capacity. BPCL operates four refineries in Mumbai, Kochi, Bina and Numaligarh, with a combined capacity of 38.3 million tonnes per annum (mtpa).
A Deloitte spokesperson in an emailed response said: “We are bound by confidentiality obligations and are unable to comment on client-specific matters.”
An external spokesperson for Apollo Global said an emailed response: “Apollo Global wouldn’t be commenting on the query sent.”
Mint had earlier reported that Deloitte informed all the bidders about whether they had qualified for the second stage of the sale process or not. In the second stage, business transfer agreements will be signed with qualified bidders and site visits will be organized for BPCL facilities. The bidders will also be allowed to inspect the OMC’s books before submitting their financial bids.
India is the world’s third-largest crude oil buyer and a key refining hub in Asia, with an installed capacity of more than 249.36 mtpa through 23 refineries. Large Indian refiners include Indian Oil Corp., Hindustan Petroleum Corp. Ltd, Nayara Energy Ltd (formerly Essar Oil) and Reliance Industries Ltd.
Prime Minister Narendra Modi has said that India plans to grow its refining capacity to 400 mtpa by 2025 from around 250 mtpa now.
Oil minister Dharmendra Pradhan earlier this month said the privatization of state-owned BPCL received three preliminary bids.
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