Vedanta says it’s in the fray for BPCL

Vedanta Ltd, India arm of Anil Agarwal-controlled, London-headquartered Vedanta group on Wednesday said it formally evinced interest in state-run oil refiner and marketer BPCL, which is on the block. While the government had confirmed receipt of “multiple expressions of interests” from domestic and foreign firms for the controlling stake in the oil major by the Monday evening deadline, Vedanta is the first potential bidder to confirm it’s in the fray.

The BPCL stock closed at Rs 383.2 on the BSE on Wednesday, falls 2.85% from previous day’s closing. Vedanta rose 1.4% to close at Rs 108.9.

BPCL owns and operates four refineries in India and 15% share of the country’s 250 million tonne refining capacity; it also has a 17,000-strong retail fuel outlet network in the country, and a over quarter of the retail market share. Its privatisation is seen as critical for the government to boost its non-debt capital receipts this fiscal, when all revenue streams are faltering due to deep economic slump caused by Covid.

“Vedanta’s expression of interest (EoI) for BPCL is to evaluate potential synergies with our existing oil and gas business. The EoI is at a preliminary stage and exploratory in nature,” a company spokesperson said.

News agencies reported that two other foreign-funded firms have also submitted EoIs for buying the government’s stake in BPCL, but FE could not independently verify this. Many, including Reliance Industries, Abu Dhabi National Oil Co, Saudi Aramco and ExxonMobil and France’s Total, were earlier reported as eyeing the controlling stake in BPCL, India’s second largest oil marketing company with a market share of 21%.

Vedanta Ltd had acquired a 58.5% stake in Cairn India for $8.67 billion in 2011. Vedanta Group had acquired a majority stake in Bharat Aluminium Company (Balco), then a PSU, in 2001; it has also over the years acquired a controlling stake in Hindustan Zinc, starting with a 26% stake it bought in 2002-03. A Supreme Court decision is being awaited on the sale of the government’s residual stakes in these companies.

Private firms have a share of over a quarter of the country’s crude oil output, more than 90% it comes from Vedanta-owned Cairn assets in Rajasthan, Andhra Pradesh and Gujarat. The remaining 74% domestic crude is produced by state-run ONGC and Oil India. To be sure, about 85% of the India’s crude oil needs are still met by imports.

While refusing to comment on the prospect of individual companies in BPCL sale process, K Ravichandran, senior vice-president at Icra, told FE that “the buyer will have to rationalise costs to generate value and optimize synergy”.

“The current global sentiment on fossil fuel poses a challenge, possibly deterring large global oil companies from placing bids, but for a developing country like India, there is no uncertainty for at least another decade,” Ravichandran added.

BPCL operates four refineries in India, Mumbai Refinery, Kochi Refinery, BORL-Bina Refinery (Bharat Oman Refineries Limited, a joint venture between BPCL and Oman Oil Company) and Numaligarh Refinery with a combined crude oil refining capacity of 38.3 million tonne per annum. BPCL’s stake in Numaligarh refinery will be sold to another CPSE oil firm separately.

Madan Sabnavis, chief economist, CARE Ratings, said: “BPCL is a well-established company where the new owner does not have to create new infrastructure, and if a private Indian oil company buys it, then it is a case of potential synergies”.

Seven-and-a-half months into the fiscal, the Centre is now making a determined effort to sell its stake in BPCL, which was worth Rs 44,040 crore at Wednesday’s closing price on the BSE. The government’s stake in BPCL was worth about Rs 60,000 crore in November 2019, around the time the stake sale proposal was approved by the Union Cabinet.

However, the actual receipts will depend on valuation and consideration of a premium (ONGC had bought the Centre’s stake in HPCL in FY18 at a premium of 14% to the stock’s price). As per Sebi takeover code rules, an acquirer company has obligation to launch a mandatory open offer for an additional 26% stake in the target company.
The stake sale, expected to be completed this fiscal was earlier seen to fetch around Rs 70,000 crore to the exchequer. The BPCL sale is likely to be single largest component of the Centre’s disinvestment receipts this fiscal, which is likely to be far below the ambitious `2.1 lakh crore budgeted.