Agarwal’s $11-12 billion price tag for BPCL could put government in a tough spot

Anil Agarwal, chairman of Vedanta Group, may have embarrassed the government by revealing it is willing to spend $11-12 billion to buy state refiner Bharat Petroleum Corporation Ltd (BPCL), stoking fears that this can “influence” valuation upstream of the financial offer.

“We’re not going to make an aggressive bid, but we’ll put the right price,” Agarwal told Bloomberg in an interview in Riyadh on Jan. 12. “The company’s market cap is around $11-12 billion, so that’s the amount of investment we’re looking at,” he added.

Agarwal’s boast of an $11-12 billion price tag for BPCL comes at a time when the government is struggling to meet the divestment target for the current fiscal year. Separately, the government’s decision to suspend the letter of intent to Nandal Finance & Leasing to acquire Central Electronics Ltd, following allegations of underpricing and bid-rigging, has emboldened critics. of its divestment policy.

Privacy

Government divestment managers have consistently shied away from revealing the names of entities that have been qualified to bid for public companies set to be privatized. The government also did not reveal the names of bidders or the divestment status of individual companies to questions raised in parliament by lawmakers, citing confidentiality clauses.

An executive from a transaction advisory firm said: “The disclosure of a potential price for BPCL is quite unusual.”

“You don’t see those kinds of details about bid price and so on from bidders, especially early in the process,” the executive said, asking not to be named.

“If you look at the memorandum of information issued to qualified interested bidders, the document mentions confidentiality restrictions that neither party is allowed to disclose details of the transaction without prior government clearance. The price or l “Evaluation is a matter defined in the information memorandum which will be decided solely by the government and kept confidential. It is not disclosed to anyone until the financial offers are opened,” he said.

Bidders must sign non-disclosure agreements/confidentiality undertakings with the government while participating in divestment from public companies, similar to mergers and acquisitions in the private sector.

Some bidders like Agarwal came forward on their own to say they had bids for companies such as BPCL and Shipping Corporation of India (SCI) while in other cases the media itself squeezed out the names of the bidders.

Consequences

Given the privacy sensitivity, sources said Agarwal’s disclosure to the media, assigning a value he is willing to put on the table to buy BPCL, has the potential to vitiate the sanctity associated with the process. auction.

“It appears to be an attempt to influence the government or try to tell the government what the price would be or what levels Vedanta would bid,” said an investment banker, who requested anonymity.

“Indeed, Vedanta has put a marker on the price. This has implications for retail shareholders as BPCL is a listed company. This will no doubt attract the attention of retail shareholders as the winning bidder will have to make an open bid under SEBI’s takeover rules,” said a second investment banker.

“It appears that the quotation only mentions an indicative price rather than a definitive price and is based on the market capitalization of BPCL which is public information,” said Akshay Sachthey, associate partner, Phoenix Legal.

“May influence the reserve price”

The unions, already up in arms against the government’s privatization campaign, set fire to the fire against Agarwal’s opinion on the valuation of BPCL.

“By revealing that the Vedanta Group is willing to spend $11-12 billion to buy BPCL, Agarwal has made the deal process, which has so far been conducted by the government in strict confidentiality, a public matter,” said an office official. Cochin Refinery Workers Association.

“This statement of a price at which he is willing to buy BPCL has the potential to influence even the reserve price that will be set by the government for the sale of the Maharatna company,” he said.

With three refineries, 18,637 outlets, 6,165 LPG distributors, 58 aviation turbine fuel stations, oil fields in seven countries, 2,241 km of multi-product pipelines, 18 joint ventures and three subsidiaries, BPCL has assets worth more than ₹8 lakh crore, according to the Cabinet Leaders Association.

“With one of the three bidders publicly revealing their price offer which must be submitted confidentially and given the uncertainty surrounding the fossil fuel industry over climate change concerns, the government will be hard pressed to find the right value for BPCL in the privatization,” the union leader said, urging the government to stop the privatization plan.

Vedanta did not respond to an email seeking comment.

Published on

January 17, 2022

Eleanor C. William