Initial offers for the privatization of Bharat Petroleum Corp Ltd (BPCL) are due to close on Monday amid indications that large British companies BP Plc, Total of France and Saudi Aramco are unlikely to submit offers.
The government, which is selling its entire 52.98 percent stake in India’s second-largest oil refining and trading company, had extended the preliminary expression of interest (EoI) filing date four times. . The current deadline is November 16.
The secretary of the Department of Investment and Management of Public Assets (DIPAM), Tuhin Kanta Pandey, had told PTI last month that there would be no further extensions.
Industry sources said that BP and Total are unlikely to bid for the stake and there are reports that even the Russian energy giant Rosneft or its affiliates and the Saudi Arabian Oil Company (Saudi Aramco) are not very interested. To bid given the sale price close to USD. $ 10 billion is required to buy the company at a time when the world is shifting away from conventional fuel.
In addition, the pandemic has caused the destruction of demand for conventional fuels and may accelerate the transition to cleaner fuels such as hydrogen and battery-powered electric vehicles.
Given the uncertain demand scenario, investors are weighing whether the BPCL acquisition makes sense, they said.
At Friday’s closing price of Rs 412.70 on the BSE, the government’s 52.98 percent stake in BPCL is worth Rs 47,430 crore. In addition, the acquirer would have to make an open offer to buy another 26 percent stake from the public, which would cost Rs 23,276 crore.
Sources said that BPCL makes a profit of approximately Rs 8,000 crore annually and at this rate it would take 8 to 9 years for the investor to recoup the offering amount of more than Rs 70,000 crore.
The acquisition makes sense for companies that can double profits by growing the business, as well as through operational efficiencies and synergies with the existing business in half that time frame.
Reliance Industries Ltd, led by billionaire Mukesh Ambani, who operates the world’s largest oil refining complex at Jamnagar in Gujarat and has fledgling ambitions to retail fuel, may be one such venture.
Until now, Reliance has been quiet about its intentions for BPCL.
Reliance, which had recently hired former BPCL Chairman Sarthak Behuria, a few weeks ago landed former Indian Oil Corp (IOC) Chairman Sanjiv Singh. The two hires could be linked to his desire to bid for BPCL, the sources said.
Sources said it makes business sense for Reliance to combine its Jamnagar refineries with BPCL units in Mumbai, Kochi and Bina, as well as merge its more than 1,406 fuel stations with 17,138 BPCL gas pumps.
The same logic also applies to Nayara Energy, run by Rosneft, which operates a 20 million tonne oil refinery at Vadinar in Gujarat and also has 5,822 gasoline pumps. But reports indicated that Rosneft was no longer interested in bidding for BPCL.
Rosneft CEO Igor Sechin had indicated in February this year the Russian giant’s interest in BPCL, but is now only interested in the company’s marketing infrastructure and not its refineries.
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Abu Dhabi National Oil Co (ADNOC) could be another potential bidder given its enthusiasm to expand into the fastest growing fuel market in the world.
Mining billionaire Anil Agarwal is considered another potential bidder given his interest in the oil and gas business with the acquisition of Cairn India for $ 8.67 billion.
But investors, when deciding to bid, have to weigh the inflexible locations of BPCL’s oil refineries, as well as tough labor laws, against access to the world’s fastest-growing fuel market.
The $ 10 billion price tag would give the buyer ownership of BPCL’s three refineries – Mumbai, Kochi in Kerala and Bina in Madhya Pradesh – 17,138 gasoline pumps, 6,151 LPG distribution agencies and 61 of the 256 fuel stations in aviation in the country.
The national pre-made fuel sales network that controls 22 percent of the market share is the most lucrative part of the deal, said a source familiar with the bidding process.
But the company’s refineries are in inflexible locations, particularly those in Mumbai and Kochi, where obtaining additional land for expansion or additions of petrochemical units would be next to impossible, the source said.
Furthermore, India’s strict labor laws pose another challenge, as any foreign or private operator would be interested in operating the company with a smaller workforce and not with a base of nearly 12,000 employees.
Another source said that BPCL’s gasoline pump network is being seen as a lucrative bait for investors, but once the existing point-of-sale lease expires or a change in land use is allowed, the pump operators of gasoline in large cities will use the sites for other companies that give a better return.
BPCL doesn’t make a lot of sense for BP and Total, who have made a conscious shift to cleaner energy sources like gas and renewables and haven’t been adding refineries, a source said.
ExxonMobil is also being talked about as a potential bidder, but the company is said to face its own financial problems.
BPCL will give buyers immediate access to 15.3 percent of India’s oil refining capacity and 22 percent of the fuel market share in the world’s fastest growing energy market.
The privatization of BPCL is essential to reach the record goal of Rs 2.1 crore lakh that the finance minister has set from the proceeds of the divestment in the budget for 2020-21.
BPCL operates four refineries in Mumbai (Maharashtra), Kochi (Kerala), Bina (Madhya Pradesh) and Numaligarh (Assam) with a combined capacity of 38.3 million tons per year, which is 15.3% of total capacity. refining of India of 249.8 million. tons.
While the Numaligarh refinery will be extracted from BPCL and sold to a feed source, the company’s new buyer will get 35.3 million tonnes of refining capacity.
The tender will be a two-stage affair, and qualified bidders in the first EoI phase will be asked to submit a financial offer in the second round. Public sector companies (UPM) cannot participate in privatization.
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