Delays in due diligence, policy opacity and now the Ukraine crisis have brought the process to a near-standstill.<\/strong><\/p>\n

Shine Jacob reports.<\/strong><\/p>\n

<\/p>\n

In December 2019, the India arm of Deloitte Touche Toh­matsu surprised many with its ultra-competitive bid to become the transaction advisor for the country’s largest strategic divestment in Bharat Petroleum Corporation (BPCL).<\/p>\n

The multinational major quoted just Rs 1; the second-highest bidder, SBI Caps, reportedly quoted Rs 15-17 crore.<\/p>\n

For Deloitte, the motivation was to bag a prestigious deal adding a national energy company to its portfolio.<\/p>\n

No doubt, it expected BPCL to go to a marquee buyer in quick time.<\/p>\n

But 27 months later, in March 2022, the much hyped deal was stuck.<\/p>\n

Procedural snags slowed the process initially; now the Ukraine crisis has complicated matters to an extent that a deal on BPCL is unlikely to happen anytime soon.<\/p>\n

According to a source, the government “may consider coming out with a revised expression of interest (EoI)”, that may either offer less than the current 52.98 per cent stake or separate the refining and retail businesses and offer them as discrete units.<\/p>\n

Neither the government nor BPCL has issued an official communication, while the Budget did not mention the issue.<\/p>\n

This inactivity is not on acc­ount of a lack of investor interest.<\/p>\n

Billionaire Anil Agarwal’s Vedanta, Apollo Management and THINK Gas, promoted by I Squared Capital, have all made overtures.<\/p>\n

But, a company official pointed out that in the last six months, nothing happened in terms of physical due diligence of BPCL.<\/p>\n

“None of the prospective bidders have visited our units or asked any questions as of now,” the source added, though prospective bidders had access to the refiner’s financial data almost a year back.<\/p>\n

The government has said BPCL’s due diligence is yet to be completed.<\/p>\n

This step is critical because the transaction advisers can invite financial bids through request for proposal (RFP) documents to qualified shortlisted bidders only after due diligence is completed.<\/p>\n

The transaction adviser and asset valuer will submit their independent valuation reports in sealed covers, which will determine the reserve price only after the process of financial bidding is complete.<\/p>\n

What explains this tepid response?<\/p>\n

One major roadblock is the lack of clarity with regard to the government control on prices.<\/p>\n

With the current volatility in international prices, experts indicate none of the serious bidders will be keen unless the government clarifies on its control over fuel prices.<\/p>\n

Recent developments underline their apprehensions.<\/p>\n

Ahead of Assembly elections in Uttar Pradesh, Punjab, Uttarakhand, Goa and Manipur, fuel prices remained untouched for almost 4.5 months (since November), putting pressure on the state-owned oil marketing companies.<\/p>\n

The prices of international crude at that time were around $82 a barrel against $103 levels today.<\/p>\n

A report by Moody’s Investors Services added that state-owned refining and marketing companies may be unable to fully pass on the recent spike in crude oil prices to the final consumer.<\/p>\n

“As a result, profitability will weaken. Higher crude oil prices also increase refiners’ working capital requirements resulting in incremental borrowings and weaker credit metrics,” it added.<\/p>\n

“Oil marketing companies were losing Rs 15-20 a litre on prices at one point. How can a private player sustain operations if it is unable to sell the product at the price they want?<\/p>\n

“Existing private players are managing because they hedge domestic sales against exports,” said a senior industry expert in terms of anonymity.<\/p>\n

Global sanctions against Russia would be another cause of concern for a global player because BPCL has upstream oil and gas assets in Russia.<\/p>\n

Moody’s indicated that import bans and international sanctions on Russia may constrain the future cash flow-generating capacity of these assets and lead to impairment losses for the companies.<\/p>\n

A company official added, “We can blame the delay on Covid for only six months.<\/p>\n

“After that lack of interest by the investors resulted in the delay.”<\/p>\n

Also, with the government announcing aggressive targets for electric vehicles by 2030, the future of a company like BPCL is not clear before a prospective bidder.<\/p>\n

“If the government is talking about decarbonisation, it should mention the future of BPCL, too, in such a scenario.<\/p>\n

“This may be the reason why big players like Saudi Aramco stayed away from the process,” the official pointed out.<\/p>\n

Industry experts are also not keen on the option of separating marketing and refining businesses for sale.<\/p>\n

Sources say that such revised expressions were floated multiple times in the case of Air India, too.<\/p>\n

“If marketing and refining are not integrated it will not make sense for a buyer.<\/p>\n

“Moreover, a lot of common infrastructure is shared between BPCL and other oil PSUs. Why will an IOC share its infrastructure with a private player? These questions are still unanswered,” said one of them.<\/p>\n

Based on the current market cap of Rs 81,173 crore, the value of the 52.98 per cent stake in the company is expected to be around Rs 43,000 crore.<\/p>\n

But with so many uncertainties, including a war, the plan for divestment of BPCL is likely to stay on the slow track.<\/p>\n

Source: Read Full Article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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