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Ministry moots IPO prior to BPCL divestment

Balaji C. Mouli

NEW DELHI, May 24

THE Government is set to seek the approval of the Union Cabinet for launching an Initial Public Offering (IPO) of Bharat Petroleum Corporation Ltd (BPCL) aggregating Rs 1,000 crore, prior to the planned disinvestment in the company.

The Ministry of Petroleum and Natural Gas (MoP &NG) has recently moved a Cabinet note mooting a primary market offering.

The IPO will be preceded by a stock split involving conversion of each share having a face value of Rs 10 into 10 shares, each having a face value of Re 1, according to senior company officials.

The public offering will involve a fresh issue of shares of 50 crore shares having a face value of Re 1 and a premium of around Rs 19.

According to the proposal, the proceeds from the IPO will be utilised towards meeting the company's expansion plans. More importantly, the float will also ensure greater liquidity in the stock prior to divestment. Currently, the public holding is limited to just close to 90 lakh shares.

The Government, which currently holds 66.2 per cent stock in the company, will post-IPO, see a marginal reduction in its holding at 57 per cent while the public holding will increase substantially from 2.99 per cent to 16.88 per cent.

The entire process is likely to take around eight to nine months to complete before the company can prepare for the next step of privatisation involving sell-off to a strategic partner. If the Cabinet clears the stock-split-cum-IPO proposal, it is likely that the privatisation of Hindustan Petroleum Corporation Ltd (HPCL) will take place well ahead of BPCL.

BPCL is in the process of setting up the Rs 6,000-crore Bina refinery in Madhya Pradesh where so far only Rs 150 crore has been invested.

Referring to the Bina project, the Union Petroleum Minister, Mr Ram Naik, mentioned today that the new refining capacities would need to be set up, implying thereby that the potential strategic investors would not have the option to scrap the projects at the time of privatisation.

The valuation of BPCL by potential bidders at the time of disinvestment will be determined significantly by this decision since bidders such as Shell with excess refining capacity in Thailand would potentially prefer to scrap the projects and import products.

If the Government makes its mandatory to commission the projects, the valuation would suffer to this extent.

BPCL has a 15 per cent market share in the refining business and a 20 per cent share in the marketing business.

The only major hitch in the HPCL sell-off involves the induction of a strategic investor in the troubled Mangalore Refineries and Petrochemicals Ltd (MRPL) where it is an equal equity partner with the AV Birla Group, having 37.5 per cent stake apiece.

The AV Birla Group is at present in talks with the Reliance Group to strike a strategic partnership.

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