Tuesday, May 17, 2022

There’s little clarity over where BPCL disinvestment is headed. Here’s why

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  • During an investors’ call conference, BPCL’s Director (Finance) VRK Gupta said that there have been no bidder visits to the oil retailer’s premises in the December quarter of FY22
  • In an interview, DIPAM Secretary Tuhin Kanta Pandey had recently said that the process has not yet reached a stage where bidders are “comfortable to bid”

New Delhi: The disinvestment of state-run Bharat Petroleum Corporation Ltd (BPCL) seems to have become shrouded in uncertainties as the process has now dragged on for two years and there seems to be lack of clarity over whether it is headed for closure even in the next financial year or not. During an investors’ call conference on Wednesday, BPCL’s Director (Finance) VRK Gupta said that there have been no bidder visits to the oil retailer’s premises in the December quarter of FY22. Refraining from commenting any further on the matter, Gupta said that the process is being steered by the government and the BPCL management is only responsible for providing the data required by bidders.

“We don’t have any significant role in the disinvestment process. Whatever due diligence, data requirements are there, every quarter we update the data requirements in the portal, and bidders are continuously accessing the data. We are continuously updating, and we are getting some queries and we are replying, that the process is on,” Gupta told investors.

Where is BPCL disinvestment process headed?

Since Vedanta Chairman Anil Agarwal had recently told Reuters in an interview in January that the company is doing due diligence on BPCL, Gupta’s statement pertaining to no bidder visits in Q3 of FY22 implies that the bidders may have sought more time from the government. The same was also reflected in an interview given by Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey recently when he said that the process has not yet reached a stage where bidders are “comfortable to bid.”

While admitting that it looks unlikely that the BPCL disinvestment process will close in FY22, as was planned earlier, Pandey had said, “It’s a question of it being a very large transaction, which sometimes poses problem, especially in petroleum sector, which underwent a lot of upheaval in the one-and-a-half to two years. In competitive bidding, bidders have to be comfortable to bid, but we have not reached that stage yet.”

Market's reaction

Reacting to the uncertainties clouding the BPCL disinvestment process and the multiple extensions announced in the deadlines coupled with the lack of clarity about what lies ahead, the markets have seen BPCL shares fall from a high of Rs 503 apiece to Rs 357.55 apiece in 52 weeks. In January, BPCL shares have touched a high of Rs 406.75 and a low of Rs 368. 

In a report released in November 2021, Fitch Ratings had said, “We continue to treat the potential divestment of BPCL by the Indian government as an event risk. Bidders are conducting due diligence, but uncertainty over the bidder consortiums and process complexity, including valuation, may lead to potential delays. We believe the risks of further Covid-19 waves and global oil and gas companies' increased focus on energy transition lead to additional uncertainty over the timing and valuation of potentially large acquisitions in the sector. We will review the ratings once significant progress is achieved.”

The depreciation in the value of BPCL’s shares will also impact the government’s mop-up from its disinvestment. The government has pegged the disinvestment yield for FY23 at a modest Rs 65,000 crore.

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