IOC weighs risks from BPCL sale, open to buying it

By: |
Published: November 5, 2019 4:38:20 AM

The government’s stake in BPCL is worth about Rs 60,000 crore at current market prices.

ioc, bpclIOC owns 43% fuel retail outlets in the country while BPCL’s share is 23%.

State-run Indian Oil Corporation (IOC) is evaluating the option of throwing its hat in the ring and taking over the entire government stake in fellow oil-refiner-marketer Bharat Petroleum Corporation (BPCL), which tops strategic disinvestment list firmed up for the current fiscal. According to an internal note circulated among IOC top brass which FE has accessed, its marketing division discussed “the issue of taking the government stake in BPCL or the ONGC stake in HPCL by IOC”, in the light of the risks to its business from a possible privatisation of BPCL, at a meeting on October 25.

The note also talks about the “enormous pricing flexibility” that BPCL might enjoy if its new owner turns out to be one with oil major crude oil assets and experience in oil retailing, a scenario which could be to the detriment of IOC’s financials in the short term.

IOC has also discussed the eventuality of neither BPCL nor HPCL coming to its fold and strategies to be adopted in such case, such as reducing manpower costs and adopting the joint venture route to expand the retail network.

Currently, IOC owns 43% fuel retail outlets in the country while BPCL’s share is 23%. HPCL owns 24% of the domestic fuel retail network. At FY19-end, IOC had reserves and surplus of rs 1.03 lakh crore and a debt to equity ratio of 0.7.

The government would rather sell its 53.3% stake in BPCL to a private firm — Saudi Aramco and Reliance are reportedly among the possible bidders for the asset — than sell it to another PSU. However, if that plan doesn’t fructify, it might even consider a deal among the PSUs as BPCL transaction is key to its FY20 disinvestment plan.

The government’s stake in BPCL is worth about Rs 60,000 crore at current market prices.

In FY18, the government had raised Rs 36,915 crore by selling its 51% stake in HPCL to upstream major ONGC and in FY19, the its REC stake was sold to PFC for Rs 15,000 crore. These deals were strictly in line with the policy objective of government exiting businesses where no strrategic interest is involved.

When contacted, an IOC spokesperson said “there is no such plan (to buy BPCL)”. He, however, added that, “the response of the prospective bidders will depend on the kind of offer from the government”.

According to the documents reviewed by FE, IOC fears that new entrant making “better offerings in high potential markets” would have “an immediate impact on IOC volumes”. To face the competition, it is planning to ask the government to relax norms regarding dealer selection and implementation of government schemes as it fears that the company’s bottom line could be affected from the burden of implementing the government schemes.

IOC expects that new private entrant will have more agility as it would not have to prioritise transparency/socialistic approach on selecting channel partner rather than capability”. Also, “hiring of best talent and removal of inefficient employees” is also cited as one of the advantages that private companies would have over the state-owned incumbents.

Moody’s Investors Service had said in October that it would not downgrade BPCL’s ratings “if the stake is sold to another government-owned company such that the government continues to appoint all of BPCL’s board of directors and have substantial control over its operations”. Otherwise, it said, it would likely downgrade the state-run oil marketing company by two notches to Ba1, which denotes medium-grade and is subject to moderate credit risk.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Next Stories
1Tata Steel arm to sell entire stake in NSV for Rs 36 crore
2RBI wants NBFCs to adopt better tools to detect liquidity strains early on
3India lags behind Pakistan and Nepal in mobile net speed: Report