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

Anil Agarwal, chairman of Vedanta Group, may have put the government in a spot by disclosing that he is ready to spend $11-12 billion to buy State-owned refiner Bharat Petroleum Corporation Ltd (BPCL), stoking apprehensions that this could “influence” valuation ahead of financial bid.

“We are not going to bid aggressively, but we will put the right price,” Agarwal told Bloomberg in an interview in Riyadh on January 12. “The market cap of the company is about $11 billion to $12 billion, so this is the amount of investment we’re looking at,” he added.

Agarwal’s boast of a $11-12 billion price tag for BPCL comes at a time when the government is struggling to meet the disinvestment target for the current fiscal. Besides, the government’s decision to put the letter of intent issued to Nandal Finance & Leasing for acquiring Central Electronics Ltd on hold, following allegations of under-valuation and bid rigging, has emboldened critics of its disinvestment policy.

Confidentiality

The government’s disinvestment managers have always stayed clear of revealing the names of the entities that have been qualified to bid for State-owned firms lined up for privatisation. Neither has the government revealed the names of the bidders nor the status of disinvestment of individual companies to questions raised in Parliament by law makers, citing confidentiality clauses.

An executive with a transaction advisory firm said, “The disclosure on a potential price for BPCL is quite unusual.”

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

“If you look at the information memorandum issued to qualified interested bidders, the document mentions confidentiality restrictions that none of the parties are allowed to disclose details of the transaction without prior permission from the government. The price or valuation is a matter defined under the information memorandum which will be decided only by the government and kept confidential. It is not disclosed to anybody until the financial bids are opened,” he said.

Bidders must sign non-disclosure agreements/confidentiality undertaking with the government while participating in the disinvestment of State-run firms, similar to mergers and acquisitions deals in the private sector.

Some bidders like Agarwal have come forward on their own to say that they have bid for firms such as BPCL and Shipping Corporation of India (SCI) while in some other cases, the media themselves have scooped out the names of the bidders.

Implications

Given the sensitivity over confidentiality, sources said Agarwal’s disclosure to the media, ascribing a value he is willing to put on the table for buying BPCL, has the potential to vitiate the sanctity associated with the auction process.

“It appears to be an attempt to influence the government or trying to indicate to the government what would be the price or what levels Vedanta would be bidding at,” said an investment banker, who declined to be named.

“Effectively, Vedanta has put a marker on the price. It has implications for retail shareholders because BPCL is a listed company. Undoubtedly, this will draw the attention of retail shareholders as the successful bidder will have to make an open offer per the take-over regulations of SEBI,” said a second investment banker.

“It seems that the quote mentions an indicative price only rather than a definitive one and is based on BPCL’s market capitalisation which is public information,” said Akshay Sachthey, Associate Partner, Phoenix Legal.

‘May influence reserve price’

Trade unions, already up in arms against the privatisation drive of the government, has stepped on gas against Agarwal’s view on valuation of BPCL.

“By revealing that the Vedanta group is willing to spend $11-12 billion to buy BPCL, Agarwal has made the transaction process that has been carried out by the government with utmost confidentiality so far, a public affair,” said an office bearer of the Cochin Refinery Workers’ Association.

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

With three refineries, 18,637 marketing outlets, 6,165 LPG distributors, 58 Aviation Turbine Fuel stations, oil fields in seven nations, 2,241 km of multi-product pipelines, 18 joint ventures and three subsidiaries, BPCL has assets worth over ₹8 lakh crore, according to the firm’s Officers Association.

“With one of the three bidders publicly revealing its price bid that has to be submitted with complete confidentiality and given the uncertainty surrounding the fossil fuel industry over climate change concerns, the government will find it difficult to find the right value for BPCL during privatisation,” the union leader said, urging the government to halt the privatisation plan. 

Vedanta did not respond to an email seeking comment.

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