National security priority in BPCL sale: Govt
NEW DELHI: The government will closely evaluate the aspect of national security before selling Bharat Petroleum Corporation Ltd (BPCL) to the highest bidder, in order to ensure that no hostile country gets direct or indirect access to India’s key energy assets, two people aware of the development said.
The government on Saturday invited bids for the strategic disinvestment of the government’s entire stake (52.98%) in BPCL, with May 2, 2020 as the last date for the submission of expressions of interest (EoIs). The current market value of the government’s stake is ₹46,298 crore.
BPCL is crucial for India’s energy security by virtue of being the second-largest fuel retailer and the third-largest refiner in the country. It will, therefore, be sold to a domestic or foreign company or consortium only after a strict security evaluation, the people mentioned above said on condition of anonymity.
“This aspect has a mention in the notice inviting EoIs from interested investors,” one of them said. “The government shall evaluate the bids and approve the H1 bidder (highest bidder). The H1 bidder post receipt of security clearance, if any, shall be called the Confirmed Selected Bidder (CSB),” the EoI guidelines document issued on Saturday said.
Experts said India does not want one of its strategically crucial assets to fall — directly or indirectly — in the wrong hands. “Investments from entities in China and Pakistan are often treated with suspicion because of their anti-India stances,” CA Vijay Kumar Gupta, former Central Council Member of the Institute of Chartered Accountants of India (ICAI) said.
The EoI document is, however, silent on the disqualification of any bidder on the basis of nationality.
According to the EoI details issued by the Department of Investment & Public Asset Management (Dipam), eligible bidders for BPCL include foreign and domestic entities with a net worth of about $10 billion. While the government allows employees of BPCL to participate in the proposed transaction, experts say that it would not be possible for them to meet the net worth criterion. It also allows central public sector companies to bid, provided that the government’s equity stake in such companies is not 51% or more.
After the EoI phase of the bidding, qualified bidders will be asked to make a financial bid in the second round. A consortium of not more than four firms will be allowed to bid, according to the guidelines issued on Saturday. The lead member of the consortium must hold 40% stake, and others must have a minimum net worth of $1 billion. While the lead member of the consortium cannot be changed, changes in other members of the consortium are allowed with certain conditions.
“The Government of India is proposing strategic disinvestment of its entire shareholding in BPCL comprising of 1,14,91,83,592 equity shares, which constitutes 52.98% of BPCL’s equity share capital along with transfer of management control to a strategic buyer [except BPCL’s equity shareholding of 61.65% in Numaligarh Refinery Limited,” the document inviting EoIs said.
Strategic disinvestment implies substantial sale of government shareholding in a public sector company along with transfer of management control.
Deloitte Touche Tohmatsu India LLP is the government’s transaction adviser.
BPCL, which is the sixth largest among Indian companies in the 2019 Fortune 500 list, has interests in upstream, midstream (pipeline, terminal, tankages) and natural gas businesses.It owns 14,802 fuel stations and 6,011 cooking gas agencies in the country, and has 52 liquefied petroleum gas (LPG) bottling plants— it distributes 21% of petroleum products consumed in the country by volume. BPCL operates four refineries in Mumbai (Maharashtra), Kochi (Kerala), Bina (Madhya Pradesh) and Numaligarh (Assam), with a combined refining capacity of 38.3 million tonnes per annum, which is 15% of India’s total refining capacity.
The disinvestment of BPCL in 2020-21 is crucial for the government to achieve its budget target of ₹2.1 lakh crore. The company was expected to be sold in 2019-20 to achieve that year’s budget target of ₹1.05 lakh crore. The government, however, missed the FY20 window, forcing a downward revision in its budget estimate for 2019-20 to ₹65,000 crore. Though three weeks are left in the current financial year, the government has so far got only Rs 34,845 crore through disinvestments
According to the experts cited above, BPCL’s current market valuation does not reflect its true value, and the sale is likely to command a significant premium, giving the government much more than the current valuation of its shares in the company.
The Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Narendra Modi on November 20 last year, approved strategic sale of five public sector companies, including BPCL. The other four companies were Shipping Corporation of India Ltd (SCI), Corporation of India Ltd (Concor), Tehri Hydro Development Corporation India Ltd (THDCIL) and North Eastern Electric Power Corporation Ltd (Neepco).
A day after the Cabinet announced the intention for strategic disinvestment, BPCL’s share price recorded a 52-week high of ₹549.70 in the BSE on November 21, 2019. Its share price was the lowest in the year at 308.55 on August 23, 2019. It was trading at ₹402.85 on Friday (March 6, 2020).