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CCD may okay strategic sales in BPCL, HPCL

Gaurav Raghuvanshi & Pradeep Puri in New Delhi

The government is understood to have decided in favour of a strategic sale before the initial public offers in downstream oil companies Hindustan Petroleum Corporation Ltd and Bharat Petroleum Corporation Ltd despite a stiff resistance from the petroleum ministry. A crucial meeting of the Cabinet Committee on Divestment is expected this week to take a final view on the issue.

"We are trying to get a date for the CCD meeting from the prime minister to take a final view on the issue of a strategic sale. We had suggested that IPOs will only delay the sale of the petroleum companies. It can also make them less attractive for prospective bidders," a divestment ministry official told Business Standard.

The ministry of petroleum and natural gas, however, continues to be in favour of an IPO in BPCL to fund the company's expansion plans. BPCL is setting up a grassroots refinery at Bina in Madhya Pradesh at a cost of Rs 65.62 billion and part of the proposed IPO proceeds are to be used for the project.

Though the ministry is yet to moot a proposal for an IPO in HPCL, it is planning to allow the company to mop up funds for its own upcoming refinery at Bhatinda.

"We will make a presentation in the meeting on why we are in favour of an IPO. It is then for the Cabinet to take a final decision," a petroleum ministry official said.

The divestment ministry's argument counters the petroleum ministry's contention.

"Investment decisions for these companies should be taken by the new management. If you saddle the strategic partner with high investments in a refinery that has been projected to be unviable, the valuation of the company will go down," the divestment ministry official said.

The finance ministry had also favoured the strategic sale in the state-owned oil companies to realise the best price, the official said, adding that the strategic sale had always yielded a better price-earning ratio as compared to a minority sale of the equity.

"The government returned with the best figures in Maruti and IPCL, despite the very large size of the two transactions. The price-earning ratio for Maruti was 89, while that for IPCL was 58, " the official pointed out.

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