Strategic sale: Financial bids for Air India, BPCL likely to be delayed by 3 months to September

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May 12, 2021 4:30 AM

“The transaction advisers are in touch with bidders, who have sought extra time for putting in bids for AI. Covid has affected mobility of bidders' representatives…site inspection is not happening,” an official said, adding that the BPCL sale process was also facing similar difficulties.

With the sweetening of the deal, senior government officials are optimistic of the AI deal going through this time. The bids for AI are likely to be under Rs 20,000 crore.With the sweetening of the deal, senior government officials are optimistic of the AI deal going through this time. The bids for AI are likely to be under Rs 20,000 crore.

With the second wave of Covid hampering movement of executives of bidders, the asset evaluation of the two large CPSEs on the block – BPCL and Air India – is being delayed. This has increased the chances of the due-diligence process getting extended, and according to official sources, financial bids for the two firms is likely to be delayed by three months to September.

The government is, however, still confident that both the transactions would be completed in the current fiscal.

“The transaction advisers are in touch with bidders, who have sought extra time for putting in bids for AI. Covid has affected mobility of bidders’ representatives…site inspection is not happening,” an official said, adding that the BPCL sale process was also facing similar difficulties.

Even though shortlisted bidders of both companies have been recently given access to data room and the actual share purchase agreement (SPA) for better understanding of the asset and liabilities of the companies, bidders have to physically assess the true value of assets of the companies. “After bidders are comfortable and complete their due diligence, putting financial bids will not take much time,” the official said.

The pandemic has also affected the normal work of transaction advisers and legal advisers for both transactions.

Earlier, the department of investment and public asset management (Dipam) was hopeful that both AI and BPCL sales would be completed by September or thereabouts; the financial bids were to be in by June.

In November 2020, multiple bidders, including Vedanta, Apollo Global Management and Think Gas, showed interest for BPCL. The market value of the Centre’s 52.98% stake in BPCL, which was down 35% to Rs 39,000 crore as on October 16, 2020, from Rs 60,000 crore in November 2019 (around the time the stake sale proposal was approved by the Union Cabinet), has recovered to Rs 53,107 crore as on Tuesday. However, the actual receipts will depend on valuation and consideration of a premium.

Tata Group was among the “multiple” suitors that had put in preliminary bids for the loss-making AI in December 2020. The government is selling its entire 100% stake in the airline that has been bleeding ever since its amalgamation with Indian Airlines in 2007.

Having failed to attract substantial interest since 2017, the Centre has this time sweetened the AI deal by giving potential suitors the flexibility to bid on enterprise value of the airline. Earlier, the buyer was required to take over as much as Rs 23,286 crore of AI’s total debt of over Rs 60,000 crore (as on March 31, 2019); the government was supposed to absorb the rest.

With the sweetening of the deal, senior government officials are optimistic of the AI deal going through this time. The bids for AI are likely to be under Rs 20,000 crore.

Failure to execute the LIC IPO and BPCL strategic disinvestment resulted in the Centre garnering only Rs 32,835 crore or 16% of its budget estimate of Rs 2.1-lakh-crore disinvestment revenue in FY21. If the LIC IPO does not materialise, the disinvestment target of Rs 1.75 lakh crore in FY22 could also be missed by a huge margin.

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