InvestorQ : Would Vedanta be able to actually benefit from the BPCL buyout and what are the challenges?
diksha shah made post

Would Vedanta be able to actually benefit from the BPCL buyout and what are the challenges?

ishika Banerjee answered.
3 years ago

While the DIPAM is yet to confirm the actual names of the participants in the Vedanta bidding, it is estimated that Vedanta is one of the prominent bidders for the 52.98% stake of the government of India in BPCL. There are 3 more names and not much is known of them.

Under SEBI Takeover Regulations, the successful bidder will have to first buy the 52.98% stake of the government in BPCL. Subsequently, the buyers of the stake in BPCL will have to buy another 22.2% from the public to take their overall stake in BPCL to 75%.

That would entail a total investment outlay of Rs.75,000 to Rs.80,000 crore, depending on the final price decided, and had been the reason some of the names like Reliance Industries, Rosneft, British Petroleum, Total of France and Saudi Aramco had backed out of the bid.

For BPCL, there are two aspects to the bid. The first is the economics of the bid and the payback period. That is not too complicated. The payback can be worked out and made economically viable through dividend payouts out of profits as well as asset sales.

Let us look at the financial burden on Vedanta, if bid is successful? Assuming Vedanta can sell down the holding of BPCL in IGL and PLNG, it would still need dedicated funding to the tune of Rs.53,000 crore. That would entail annual interest outgo of nearly Rs.5,500 crore.

That could be the real challenge. Vedanta may not be too heavy on debt in its balance sheet but most banks have raised serious questions about the extent of leverage of Vedanta’s parent company. That would magnify the challenge of fund raising for Vedanta.