BPCL begins talks to buy GAIL for ₹18,000-20,000 cr
MUMBAI: State-run Bharat Petroleum Corp Ltd (BPCL) is in talks with the country’s largest natural gas transporter GAIL (India) Ltd to acquire the government’s majority stake in the latter for ₹18,000-20,000 crore.
Three persons with direct knowledge of the discussions said this on condition of anonymity as the talks are at a nascent stage and the government has not formally approved the plan.
“BPCL is interested in a merger with GAIL to expand its range of businesses and the government has been informed about it. Any merger should happen at the fair market price but there may be some premium to the prevailing value of the stock because these companies are Maharatnas,” said a finance ministry official.
“With BPCL’S aggressive plans to expand in the gas sector, Gail is a perfect fit for BPCL offering it a ready market. The nitty gritties of the deal are being discussed,” said the second person, who is a senior official at one of the two firms.
Neither BPCL nor GAIL responded to emails sent on September 15 seeking comments.
BPCL, one of the country’s largest fuel retailers, has a market value of ₹1.08 lakh crore, second only to Indian Oil Corp Ltd, which has a market cap of ₹2.01 lakh crore as on Friday. GAIL is valued at ₹33,817.61 crore.
GAIL is currently laying down the 2,539km long Jagadishpurhaldia-bokaro-dhamra Natural Gas Pipeline to supply energy to homes and refineries in the eastern India. The project, which is likely to be commissioned by December 2020, will connect locations across Uttar Pradesh, Bihar, Jharkhand, West Bengal and Odisha and supply feed gas to anchor fertiliser units at Gorakh- pur, Barauni and Sindri.
Even though the BPCL-GAIL merger talks are at an initial stage, the government has held a discussion with investment banks SBI Capital Markets Ltd to examine the best possible structure of the deal and its synergies.
Varsha Purandare, MD and CEO of SBI Capital Markets said: “We and the government engage in talks for a number of potential transactions. We cannot comment about the BPCL-GAIL merger plans at the moment.”
To be sure, BPCL and GAIL already operate together through a few joint ventures in the city gas distribution space. These companies include Indraprastha Gas Ltd, Central UP Gas Ltd, Maharashtra Natural Gas Ltd and Goa Natural Gas Pvt Ltd.
As on March 2017, IGL has 421 CNG stations in Delhi and NCR and over 740,000 domestic piped natural gas customers in Delhi and its suburbs. “By acquiring a majority stake in GAIL , BPCL will automatically get a large customer base. This will work well for BPCL,” said the second person quoted above.
BPCL plans to invest ₹1.08 lakh crore over the next five years to expand operations across its business segments, CMD D Rajkumar told reporters at a post-annual general meeting press conference on September 12.
The government holds 54.88% stake in GAIL and as per Friday’s stock closing, BPCL could have to pay ₹18,000 crore to buy out this stake for the planned merger.
According to the government’s plan, Oil and Natural Gas Corp Ltd is in the process of buying the government’s 51.11% stake in Hindustan Petroleum Corp Ltd.
According to a July 18 report by The Economic Times, staterun Indian Oil Corp Ltd is in talks to buy out the government’s 66% stake in Oil India Ltd.
If everything goes as per the plan, the consolidation in the energy industry through divestment of the government’s stake in various oil and gas firms could generate significant non-tax revenues for the exchequer and help the government meet its disinvestment target of ₹72,500 crore for the financial year.
Finance minister Arun Jaitley, in his budget speech, had said the government’s plans to merge state-owned energy firms in order to create integrated domestic oil majors to compete with global energy giants.