InvestorQ : Is it true that the divestment of BPCL has been put off to the next fiscal year and what happens to the disinvestment target now?
Dawn Cherian made post

Is it true that the divestment of BPCL has been put off to the next fiscal year and what happens to the disinvestment target now?

Mitali Bhutta answered.
4 months ago

As of now there is no official word from the government. However, if you consider that there is less than 3 months to go for the conclusion of FY22, completing the BPCL divestment before that time looks increasingly unlikely. There are a lot of steps still left like calling for bids, finalizing bids etc. It will surely impact the revenues for the year since there is an aggressive target, but I will come back to that later.

The first challenge for the government is to get a good valuation. BPCL currently has a market cap of Rs.84,700 crore. The government wants to collect around Rs.60,000 crore from BPCL sale. But getting that kind of money for its 52.98% stake in BPCL is actually looking quite far-fetched. Already, government is facing the ire of unions for giving away BPCL too cheap, so it would not want to be seen offering BPCL on a platter.

In terms of the status of the processes for the divestment, the expressions of interest have already come but final bids are yet to be called for. In this fiscal, there are less than 3 months so it does look very impractical that it would happen in this fiscal year. In addition, considering its large borrowings, the divestment will also require the approval of lenders, who would be concerned if the government umbrella was to go away from BPCL.

Currently there is Vedanta that is interested and there are 2 P/E funds in the fray for the 52.98% stake of the government. Many energy majors globally had to take huge write-offs on account of the pandemic. This reduced their appetite for major inorganic expansion. However, buying BPCL gives the potential buyer 25.77% of the fuel retailing market in India and 15.3% of the refining capacity. So there is surely strategic value in the franchise.

In the midst of all this pending formalities, it is still not clear if the proposed buyer of BPCL has to make an open offer to the shareholders of Indraprastha Gas and Petronet LNG. Finally, it will certainly hit divestment revenues as you asked. India has a divestment target of Rs. Rs.175,000 crore for FY22. With LIC and BPCL now looking doubtful in this fiscal, it will leave a huge gap in the divestment target for the current fiscal too.