[blackwasp]

The government on Monday received 'multiple' bids for buying out its stake in India's second-biggest fuel retailer BPCL but billionaire Mukesh Ambani's Reliance Industries as well as supermajors Saudi Aramco, BP and Total did not make a bid.

Tuhin Kanta Pandey, Secretary, Department of Investment and Public Asset Management (DIPAM), which is handling the strategic sale, tweeted that the transaction advisors for the sale of government's 52.98 per cent stake in Bharat Petroleum Corp Ltd (BPCL) have reported receiving "multiple expressions of interest."

Reliance Industries, which was considered a potential bidder as BPCL would have added 22 per cent fuel market share to its fledgling retail business and made it the nation's number one oil refiner, did not put in an expression of interest (EoI) at the close of the deadline on Monday.

Saudi Arabian Oil Company (Saudi Aramco), which had been keen to enter the world's fastest-growing fuel market, too did not put in an EoI.
UK's BP plc and Total of France - who have plans to foray into the Indian fuel market - had previously ruled themselves out of the BPCL race as they did not want to add oil refining assets when the world was moving away from liquid fuels.

Source

The government, which is selling its entire 52.98 per cent stake in India's second largest oil refining and marketing company, had on four occasions extended the date of putting in the preliminary expression of interest (EoI). The current deadline is November 16.

Also, the pandemic has led to demand destruction of conventional fuels and may hasten transition towards cleaner fuels such as hydrogen and battery-operated EVs.

Given the uncertain demand scenario, the investors are weighing if BPCL acquisition makes sense, they said.

At Friday's closing price of Rs 412.70 on the BSE, the government's 52.98 per cent stake in BPCL is worth Rs 47,430 crore. Also, the acquirer would have to make an open offer for buying another 26 per cent stake from the public, which would cost Rs 23,276 crore.

Sources said BPCL annually makes a profit of about Rs 8,000 crore and at this pace it would take 8-9 years for the investor to recover the bid amount of over Rs 70,000 crore.

Source

The latest round of bidding for BPCL's privatisation comes at a time when the coronavirus pandemic-related restrictions have hurt world economy and businesses, especially those operating in the oil and travel & tourism-related sectors.

Brent futures - the global benchmark for crude oil rates - are down 36.76 per cent so far this year, though having recovered nearly two times from a two-decade low of $15.98 per barrel in April on account of COVID-19.

In the country's largest privatisation drive ever, the government had invited bids from investors in March this year. But since then, that deadline has been extended four times by the Department of Investment and Public Asset Management (DIPAM). The government has said that there will be no further extension.

Given the uncertain demand scenario, the investors are weighing the Bharat Petroleum Corporation acquisition, they said.

The acquirer will also be required to make an open offer for buying another 26 per cent stake from the public, which would cost ₹ 23,276 crore.

Private companies with a net worth of $10 billion are eligible for bidding, and consortiums of up to four firms are allowed to bid. The lead member of the consortium must hold a 40 per cent stake, while others must have a minimum net worth of $1 billion each.

Source

[V.Narayan]

To privatize PSUs or not to privatize is a question that can never be fully answered. And then the answers will vary from PSU to PSU. Govt of India ownership of a PSU in strategic sectors does make sense so long as it is limited to one large well run PSU, per sector, that can be used when needed to protect our national interests. I believe, and this is just my personal opinion, that strategic sectors such as telecom, oil, energy, electricity distribution, steel, banking, mining, railways, should have some serious PSU presence for a country like India. Beyond that one key well-funded PSU player per sector the rest should be privatized.

I have in my active years participated in the bids for Air India and parts thereof. What the Govt gets wrong is trying to do complex bids in the same "lowest bidder" way it doles out road contracts. Except here it is highest bidder. The bankers to the deal vie to get onto the lead banker role by offering the moon where bid price goes and sadly as we have seen repeatedly the buyers don't agree. In the last Air India bid I had personally expressed to the Govt that this 'bankers promise' method won't get them anywhere and got lamblasted for being a vested buyer! My suggestion that they ask the bankers to underwrite the deal to get to a real price discovery fell on deaf ears and another tongue lashing :-( The Govt simply does not want a narrow prism CAG enquiry so the terms and conditions of the sale offer gets coloured by promises from deal managers who are not underwriting the deal.

Now if they offered BPCL at a 25% to 30% discount to market would they still have found no buyers? Fact is the price ran up 20%, to~ Rs 414 in 30 days in anticipation of this deal. Buyers won't pay a dime for this speculative extra of ~Rs 65 per share. At best it can be sold at a 15% discount to the pre-bid price. But no one in the bureaucracy, and I don't blame them, can take that call given the sceptres of CAG, CVC, CBI and their well meant but blinkered approach.

I am glad this Govt is making some attempt to raise funds by divesting PSUs in a select manner. Albeit sound and fury far out weighs the actual effort on the ground. It is the need of the hour to unshackle these national assets from the clutches of the ministries. But when even a Navratna oil PSU that turns a profit fails to get a single bidder in a world wide tender the GoI needs to sit up and ask are we approaching this the right way? Or is the plan to do a single bidder sale to a favourite?

[srini1785]

Reliance Industries, which was considered a potential bidder as BPCL would have added 22 per cent fuel market share to its fledgling retail business and made it the nation's number one oil refiner, did not put in an expression of interest (EoI) at the close of the deadline on Monday.

Mota Bhai is himself trying to get out of the oil business and betting big on retail and e comm space. So no wonder the below proposition does not interest him :

Sources said BPCL annually makes a profit of about Rs 8,000 crore and at this pace it would take 8-9 years for the investor to recover the bid amount of over Rs 70,000 crore.

I am assuming that the sale is for both refining and retail division. There was a talk of BPCL spear heading the battery R&D for EV's , looks like its fallen through. The Oil boom is well and truly on its way out and the gyan that PSU's are also on their way out is writing on the wall.

While BPCL is still profit making so may eventually find a buyer, GOI has to get practical while trying to sell Airavatas like Air india.

[ABHI_1512]

Multiple suitors according to the government but strangely all the big names are missing from the list. Either there is something grossly wrong in the entire process or perhaps the valuation is flawed enough to not evince interest for the major players or may be, the idea is to narrow down the sale to a particular bidder.

A profitable company like BPCL not getting bids even after repeatedly changing norms is not that great a news. Agreed, the future of fossil fuels is not that bright but still, going by the present day earnings and the profit figures, the valuation still looks little flawed. As VS sir said above, strategic sectors should have government presence and I agree to that too.

All the big players were interested initially when the first announcement of disinvestment of BPCL was made including BP, TOTAL and Saudi ARAMCO and of course our home grown Reliance. But now, after repeatedly extending the deadlines, finally all the major players are missing from the bid process. I would not be surprised if Deloitte scrutinises the ‘multiple’ bids and finds no one eligible !!

Making announcements is one and actually working on it is little different. The government is on the right track to disinvestment and should be applauded for that too. I hope the government walks the talk and not end up favouring someone as has been the norm in the privatisation of the airports where now only one company controls almost all the major airports in the country.

[DigitalOne]

Originally Posted by V.Narayan

But when even a Navratna oil PSU that turns a profit fails to get a single bidder in a world wide tender the GoI needs to sit up and ask are we approaching this the right way?

Perhaps the government missed the bus by 4-5 years. From what I read, many of the big oil global companies like BP have strategically moved onto green renewables; Fossil fuels are no longer their strategic long term growth engines.

[SmartCat]

I'm all for privatizing inefficient loss making PSUs like ITI or BSNL or SAIL or whole clutch of PSU Banks. Hand it over to privately owned companies and see if they can turn it around.

But it makes absolutely no sense to sell ultra-profitable companies like BPCL. Even during the worst of times (like 2008, when crude oil shot up), BPCL was always profitable - despite selling fuel at below the "market price" (subsidizing consumers). Also, there is no "value addition" by private companies. The huge retail network is already there. The refineries have already been setup, and the company has plans to setup more greenfield units. There is no way a private company can further improve the financials of the company. BPCL's long term return on equity numbers put most private companies (including Reliance Industries) to shame:



However, if BPCL is sold to Saudi Arabia (oil superpower), then it is OK. For India, such a move will guarantee oil supply in case of geopolitical shocks like War in the neighborhood. Such a move will also guarantee diplomatic support for India in case of smaller conflicts or military standoffs. In return, the oil superpowers get guaranteed market access to one of the largest oil consumer in the world.

[V.Narayan]

Originally Posted by SmartCat

But it makes absolutely no sense to sell ultra-profitable companies like BPCL. Even during the worst of times (like 2008, when crude oil shot up), BPCL was always profitable - despite selling fuel at below the "market price" (subsidizing consumers). Also, there is no "value addition" by private companies. The huge retail network is already there. The refineries have already been setup, and the company has plans to setup more greenfield units. There is no way a private company can further improve the financials of the company. BPCL's long term return on equity numbers put most private companies (including Reliance Industries) to shame:

Great point. However the Govt needs to sell to cover its ability to repay debt and make up the fiscal deficit. It needs to sell what can be sold rather than what needs to be sold.

However, if BPCL is sold to Saudi Arabia (oil superpower), then it is OK. For India, such a move will guarantee oil supply in case of geopolitical shocks like War in the neighborhood. Such a move will also guarantee diplomatic support for India in case of smaller conflicts or military standoffs. In return, the oil superpowers get guaranteed market access to one of the largest oil consumer in the world.

+1 to that. Excellent point.

[Cessna182]

Noob question- when private companies want to raise money from the market, they can list more shares by diluting their equity. Investors can buy and trade these shares in the stock market.

Why can't the government do the same? Like, gradually list more shares on the stock market by diluting its equity? Why does it have to go through a bidding process?

[SmartCat]

Originally Posted by Cessna182

Why can't the government do the same? Like, gradually list more shares on the stock market by diluting its equity? Why does it have to go through a bidding process?

They do it all the time, but there are not many takers usually. Most of the time, LIC ends up buying the shares. Couple of years back, Govt sold HPCL to ONGC and raised funds. But all these are just jhumla (sleight of hand) - since LIC and ONGC are both owned by the Govt.

However, Govt raised funds by diluting equity through CPSE ETF, across many tranches. That was quite successful
https://www.business-standard.com/ar...0101542_1.html

[blackwasp]

Vedanta puts in expression of interest to buy govt's entire stake in BPCL

Vedanta Group on Wednesday confirmed putting in a preliminary expression of interest (EoI) for buying government's nearly 53% stake in privatisation-bound Bharat Petroleum Corp Ltd (BPCL).

Vedanta's interest in India's second largest fuel retailer is because of synergies with its existing oil and gas business.
The government is selling its entire 52.98 per cent stake in BPCL and last date of putting EoI was 16 November.

"Vedanta's EoI for BPCL is to evaluate potential synergies with our existing oil and gas business," the company spokesperson said in a statement. "The EoI is at a preliminary stage and exploratory in nature."

Source

[SnS_12]

Originally Posted by V.Narayan

The Govt simply does not want a narrow prism CAG enquiry so the terms and conditions of the sale offer gets coloured by promises from deal managers who are not underwriting the deal.

Now if they offered BPCL at a 25% to 30% discount to market would they still have found no buyers? Fact is the price ran up 20%, to~ Rs 414 in 30 days in anticipation of this deal. Buyers won't pay a dime for this speculative extra of ~Rs 65 per share. At best it can be sold at a 15% discount to the pre-bid price. But no one in the bureaucracy, and I don't blame them, can take that call given the sceptres of CAG, CVC, CBI and their well meant but blinkered approach.

This is exactly why most government employees follow the same old routine of doing business as the perks are not that great as compared to a private job when it comes to performance and the Babu’s love their government job more than anything else.

I have experienced this first hand being in the insurance field and dealing with some of the largest government owned Insurance companies in India. When you are trying to get a reinsurance quote for a complex risk say a refinery or a nuclear power plant from an international market getting the cheapest quote is not always the best approach. As many reinsurers don’t feel the risk is price adequately and hence consider working on tenders a waste of their time.

Now the top management in a public insurance company understands the challenges in going for a tender but don’t want to take a different approach as then they would be seen as favouring a particular broker/reinsurer and attracting the wrath of the CAG in the future if anyone from the industry logged a complaint against this approach.

Originally Posted by SmartCat

However, if BPCL is sold to Saudi Arabia (oil superpower), then it is OK. For India, such a move will guarantee oil supply in case of geopolitical shocks like War in the neighborhood. Such a move will also guarantee diplomatic support for India in case of smaller conflicts or military standoffs. In return, the oil superpowers get guaranteed market access to one of the largest oil consumer in the world.

This is exactly why Aramco buying a 15% stake in the Jammagar refinery was considered a big win as it would ensure in case of a war with our friendly neighbours the refinery would be safe and also push down the Terrorism premium for this refinery

[Spaced Out]

I am all for privatizing select PSUs and as many members have stated above, this need to be done rapidly instead of destroying their value beforehand.

Also, we need more transparency on how the government and whichever is the ruling party of the day, treats these PSUs as their wallets. Indira Gandhi started this and others have followed and maximized this. It's an open secret in the non-profit sector that to get PSU CSR funds you need to approach Secy/Jt Sec level. PSU CMDs will jump and salute whatever is requested via Ministry.

Originally Posted by SnS_12

This is exactly why most government employees follow the same old routine of doing business as the perks are not that great as compared to a private job when it comes to performance and the Babu’s love their government job more than anything else.

This part of your comment is really critical. I have discovered this to be completely true in many engagements with government bureaucracy at the Secy, Jt Sec level and going all the way to IIT Directors and IIM Professors. Here is how I understand this phenomena -

Do nothing and life will progress as always.

Do something and life could become difficult.

So why do anything?

Granted that I am heavily generalizing and there are some very committed government servants. Yet the system they operate under does not encourage initiative and most often they succumb to it.

We need more research on when government functions well and what conditions lead to such outcome. I recommend that interested members look at the Dept of Biotechnology - its has had phenomenal leadership in promoting BioTech entrepreneurship ecosystem in India through BIRAC. And despite their great work, they tend to fly low under the radar despite the enormous engagement they have with industry and aid organisations.

Post Script:

A few years ago, I organized a conference on innovation in public service in collaboration with a government body that works in this area. They and my organization worked together on sending the invites to a range of senior officials. I was very amused on seeing the email list - virtually everybody used a Gmail/ Yahoo and even Hotmail. Example: secypetroleum@gmail.com

And these are of course the same guys who give lectures on anti-nationalism.

[maheshm619]

Being a PSU employee myself, this response might be biased.BPCL finding not a bidder might be part of a bigger game.Usually in tendering process, the valuation is lowered to find a suitable buyer when initial rounds doesn't yield any results.So interested players might be waiting to pounce on it when the deal is sweet.

Some PSUs are truly a cut above when it comes to work practices and can outshine similar private players.Generalizing a whole group as lazy babus is unjust. The govt. move of selling good profitable companies seems like penny wise and pound foolish.Having said all these most PSU employees feel that mota bhai will eventually buy all of this in a clearance sale.

[Spaced Out]

Originally Posted by maheshm619

Being a PSU employee myself, this response might be biased.BPCL finding not a bidder might be part of a bigger game.Usually in tendering process, the valuation is lowered to find a suitable buyer when initial rounds doesn't yield any results.So interested players might be waiting to pounce on it when the deal is sweet.

Some PSUs are truly a cut above when it comes to work practices and can outshine similar private players.Generalizing a whole group as lazy babus is unjust. The govt. move of selling good profitable companies seems like penny wise and pound foolish.

Completely agree with you on some PSU's doing a great job. I agree that it's wrong to generalize them as lazy. But I do feel that the odds are great stacked against good leaders taking initiative. The folks running the system are too invested in status quo. The ruckus within CSIR Tech is a good example. Setup to commericalize tech, it was finally shut down in 2017.

Originally Posted by maheshm619

Having said all these most PSU employees feel that mota bhai will eventually buy all of this in a clearance sale.

Ha ha! I love the nickname mota bhai. Made me laugh this morning.

Mota bhai's dosti with regulators is legendary. A long time stockbroker uncle advised me to never bet against them. No matter the party in power, they always come on top.

It also helps that mota bhai directly or indirectly (through buying debt) owns most of the corporate media in this country.

[DigitalOne]

Vedanta has given full front page ad in today's Times of India (Bangalore Edition), introducing themselves as India's largest private crude oil producer.

Lot of yellow and blue in the ads. Coincidence, I am sure .