InvestorQ : Is it true that the BPCL divestment has been pushed off to the next financial year i.e. FY23 instead of current year?
ishika Banerjee made post

Is it true that the BPCL divestment has been pushed off to the next financial year i.e. FY23 instead of current year?

1 year ago

Union Budget 2022 has clearly hinted that only the mega issue of LIC will happen this year and that the BPCL disinvestment would not happen in the fiscal year FY23. While there is no official confirmation, one only needs to look at the collection estimates for both years to get an idea of when BPCL is scheduled. BPCL is a complete and total privatization of the company as the entire 52.98% stake in BPCL is planned to be sold to private entities.

To be fair, FY 22 has been relatively good for the privatization theme after a long gap. Loss making Air India was sold to the Tatas and while the inflows were small, at least, the government stops bleeding billions of dollars each year running the loss making behemoth. Then there was the much smaller sale of Central Electronics Ltd to Nandal Finance and finally the recent sale of Neelachal Ispat sold entirely to Tata Steel for over Rs.12,000 crore.

Now it looks like the BPCL deal may not be all that straight forward as the government wants a better deal. Government has not been too happy with the limited bids it has received. They originally got 3 bids but 1 bidder backed out. Now, the only prominent bidder for BPCL is Vedanta of UK. Vedanta is ready to pay up to $10-12 billion but the government is keen to see more competitive bids coming in for BPCL before the sale.

There are also valuation questions, especially if you look at the current market price. The market cap of BPCL stands at Rs.83,000 crore so 52.98% stake of government should be worth Rs.44,000 crore. However, the government is expecting around Rs.70,000-Rs.80,000 crore for the stake, which is justified with the control premium. However, there are not too many takers for BPCL even at this price, other than Vedanta, which has governance issues.

Finally, government wants to be clear if they can get a still better price for BPCL by waiting. One option is to retain 26% stake and get a much better valuation for that stake post privatization. That will also gratify employees and creditors for now. The government looks like it will gain more by going slow on BPCL divestment for now. That looks likely to happen. It is not yet clear if the government really wants to go ahead with BPCL.