The acquirer will have to make an open offer to the minority shareholders of Petronet and IGL
According to sources, privatisation-bound Bharat Petroleum Corporation (BPCL) may sell a portion of its stake in Petronet LNG and Indraprastha Gas (IGL) in order to lose its promoter status and avoid the need for its new owner to make open offers for the two gas companies.
BPCL owns 12.5 per cent of Petronet, India's largest liquefied natural gas importer, and a 22.5 per cent stake in IGL, India's largest city gas retailer. It promotes both listed companies and holds board positions.
According to the legal position assessed by the Department of Investment and Public Asset Management (DIPAM), the department in charge of the sale of the government's whole 52.98 per cent stake in BPCL, the acquirer of BPCL will have to make an open offer to the minority shareholders of Petronet and IGL for the acquisition of 26 per cent of the company, as per three sources familiar with the situation.
This is because BPCL is a promoter of both companies, and since the promoter firm's ownership has changed, an open offer is triggered under Sebi (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
According to reports, BPCL might sell a portion of its stake in the two companies and lose promoter status, avoiding the need for open bidding. This could be a way put for the company. BPCL, on the other hand, believes that selling the stake and relinquishing promoter status and directorships would lead to significant value erosion for the company.
Government officials believe that the open offers for Petronet and IGL will prevent bidders who are primarily interested in BPCL's oil refining facilities and 22 per cent stake in the fuel marketing company, according to sources. BPCL spokesperson declined comments for the story. The government's 52.98 percent stake in BPCL is valued at about Rs 54,000 crore at the current share trading price. The need for making an open offer for an additional 26 per cent to minority shareholders of the company will cost an additional Rs 26,700 crore.
An open offer for 26 per cent stake in IGL would cost the acquirer an extra Rs 9,400 crore and a similar offer for Petronet would cost over Rs 9,300 crore.
Bidders may not see BPCL's share in Petronet and IGL as a value proposition, according to sources, because such a stake does not grant them any special rights, such as preferential LNG imports at Petronet terminals or a say in IGL's gas retailing. They said that during talks with DIPAM, the possibility of BPCL selling a portion of its stake in Petronet and IGL was addressed.
BPCL management stated at those discussions that the best option would be for the Securities and Exchange Board of India (Sebi) to provide an open offer exemption to the successful bidder of BPCL, as was done when ONGC bought the government stake in HPCL. But in the case of the ONGC-HPCL deal, the promoters of both the firms were the same, that is, the government of India and there wasn't a change of ownership per se.
According to sources, BPCL management also pointed out that the approval by Cabinet Committee on Economic Affairs (CCEA) for BPCL's privatisation did not include any reduction in Petronet and IGL's shares. No reduction in Petronet and IGL holdings was mentioned in the expression of interest (EoI) announced for stake sale in BPCL. DIPAM can go back to the CCEA and secure approval for interest sales in Petronet and IGL, they claimed.
Mining-to-oil conglomerate Vedanta and private equity firms Apollo Global and I Squared Capital's arm Think Gas, are in the race to buy government stake in BPCL.
The stake sale in India's second-largest fuel retailer is crucial to plans to raise a record Rs 1.75 lakh crore from disinvestment proceeds in fiscal 2021-22 (April 2021 to March 2022).
The buyer will possess about 15.33 per cent of India's oil refining capacity and 22 per cent of the fuel marketing stake, according to BPCL. The company's buyer will receive 35.3 million tonnes of refining capacity, a 12 million tonne Mumbai refinery, a 15.5 million tonne Kochi refinery, and a 7.8 million tonne Bina refinery.
In addition, BPCL has 18,639 petrol pumps, 6,166 LPG distribution agencies, and 61 of the country's 260 aviation fuel stations. The company also has an upstream presence in nine countries, including Russia, Brazil, Mozambique, the United Arab Emirates, Indonesia, Australia, East Timor, Israel, and India, with 26 assets. It's also branching out into city gas distribution, with licences for 37 geographical areas (GAs).