InvestorQ : How much does the government propose to raise through the sale of stake in BPCL?
ishika Banerjee made post

How much does the government propose to raise through the sale of stake in BPCL?

12 months ago

If you thought that the government would raise money in BPCL stake based on market prices think again. The government is looking to raise around Rs.90,000 crore from the privatization of BPCL, which is roughly twice the valuation that the stock is currently quoting on the NSE and BSE. That is a huge premium for control that the government is asking.

The government holds 52.98% stake in BPCL and wants to hive off the entire stake but it wants to value the company based on the asset value rather than the stock price. The contention of the government is that the premium that the investor pays for BPCL can be easily compensated if they monetize even a part of the hidden value of BPCL.

Anil Agarwal’s Vedanta is one of the key bidders for the 52.98% stake that the government currently holds in BPCL. Apart from Vedanta Group, two American funds viz. Apollo Global and I-Squared Capital have also submitted their expressions of interest or EOI for the government stake in BPCL. The final call on valuation is yet to be taken by the advisors.

There are multiple reasons why the government is demanding a premium in the case of BPCL. If you take BP-RIL deal as the benchmark with a stable tax regime for petrol and diesel, then with 16,000 retail outlets, the double valuation of BPCL is justified. Alternatively, on a replacement cost basis; the refinery, terminals and depots network can add EV of Rs.40,000 crore to BPCL.