BPCL Privatisation: IOC, GAIL may buy shares if open offer for Petronet, IGL gets triggered

State-owned IOC, GAIL and ONGC may buy shares of Petronet LNG and Indraprastha Gas in the eventuality of an open offer getting triggered post privatisation of Bharat Petroleum Corporation Ltd (BPCL), sources said.

BPCL holds 12.5 per cent of the shareholding in India's largest liquefied natural gas importer, Petronet, and a 22.5 per cent stake in city gas retailer, IGL. It is a promoter of both the listed companies and holds board positions.

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As per the legal position evaluated by the Department of Investment and Public Asset Management (DIPAM) - the department running the process for the sale of the government's entire 52.98 per cent stake in BPCL - the acquirer of BPCL will have to make open offers to the minority shareholders of Petronet and IGL for the acquisition of 26 per cent shares.

To avoid such a scenario, DIPAM on April 19 made a request to markets regulator Sebi for grant of exemption for an open offer in Petronet and IGL, three people aware of the matter said.

SEBI, however, conveyed that the application needs to be made in the prescribed format by BPCL as the promoter of IGL and Petronet, they said adding BPCL subsequently made such an application.

In the eventuality of the exemption not coming and the open offer getting triggered, other public sector promoters of Petronet and IGL can jointly participate in such share offering with the new owner of BPCL to increase their stake in these companies so as to ensure that they remain the largest shareholders, two sources said.

Gas utility GAIL holds a 22.5 per cent stake in IGL and it along with BPCL is co-promoter of the city gas retailer.

In the case of Petronet, GAIL, refiner Indian Oil Corporation (IOC) and oil producer ONGC hold a 12.5 per cent stake each - the same as BPCL.

The remaining shares in both Petronet and IGL are held by public and institutional investors.

With BPCL becoming private, the public sector shareholding in IGL and Petronet will fall, potentially changing the character of the two firms.

In IGL, the new owner of BPCL will get a 48.5 per cent stake post open offer. In Petronet, the new owner of BPCL will own 38.5 per cent - higher than 37.5 per cent combined shareholding of IOC, ONGC and GAIL.

To maintain public sector dominance, it has been suggested that the other promoters of IGL and Petronet can participate in the open offer jointly with the acquirer (of BPCL), sources said adding this way they can increase their stake in these companies by partially acquiring some of the shares tendered by the general shareholders.

This, they said, will ensure that these PSUs remain the largest shareholders in these companies, thus fulfilling government objectives.

The other alternative to avoid the new owner being forced to make an open offer was for BPCL to sell a part of its shareholding in Petronet and IGL, thereby shedding its promoter status.

However, BPCL is opposed to such an idea as it will be a value destroyer.

Sources said the government is of the view that the new owner of BPCL should not be forced to make an open offer for Petronet and IGL.

It believes that the open offers for Petronet and IGL may deter bidders who are mostly eyeing BPCL's oil refining assets and 22 per cent share of the fuel marketing business it commands.

The government's 52.98 per cent stake in BPCL is valued at about Rs 52,125 crore at the current share price. The requirement for making an open offer for an additional 26 per cent to minority shareholders of the company will cost an additional Rs 25,580 crore at current prices.

On top of it, an open offer for a 26 per cent stake in IGL would cost the acquirer an additional Rs 9,800 crore and a similar offer for Petronet would cost about Rs 8,500 crore.

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 the government's stake in BPCL.

The stake sale in India's second-largest fuel retailer is crucial to raise a record Rs 1.75 lakh crore from disinvestment proceeds in fiscal 2021-22 (April 2021 to March 2022).

BPCL will give the buyer ownership of around 15.33 per cent of India's oil refining capacity and 22 per cent of the fuel marketing share.