The cabinet committee on economic affairs cleared the privatization of Bharat Petroleum Corp. Ltd and Shipping Corp. of India. It is one of the government's largest asset-sale exercises involving five companies.
Other companies in which the government will sell stakes are Container Corp, of India Ltd, THDC India Ltd, and North Eastern Electric Power Corp, Ltd.
The government will sell its 74.23% and 100% stake in THDC andNeepco respectively also with management control to state-run India's largest power generation company- NTPC Ltd as part of a consolidation exercise of the state-run hydropower firms.
Earlier, the government set a tall divestment target of 1.05 trillion for the fiscal year 2020. It would need to sell stakes in some of the large public sector companies to reach the goal. Here, BPCL seems to be on the radar.
According to a report in Business Standard, the union government was planning to sell its entire stake worth more than 40.000 crores in Bharat Petroleum Corp. Ltd. In the same way, the stake sale would most likely be to another government-owned entity, Indian Oil Corp. Ltd.
One of the biggest and most significant questions rose whether the privatization of BPCl would bring positive results for investors.
Analysts fromICIC Securities Ltd said, "The privatization of BPCL would realize a higher price, and may be helpful to take politics out of the auto fuel pricing.
It would also assure IOC's ability to pay a hefty dividend to the government is not impaired and may enhance the market sentiment as it would be seen as big bang reforms."
Earlier, the government had sold its stake in Hindustan PetroleumCorp. Ltd to Oil and Natural Gas Corp. Ltd at an 18% premium to prevailing prices. Analysts at Prabhudas Lilladher think the premium can be much higher in the case of privatization.
Furthermore, a merger with IOC will bring a large behemoth in the energy sector. BPCL's stake sale to IOC will raise the latter's market share dominance in transportation fuels that may reduce proposed private sector investments in these fields according to ICICI Securities.
In the recent past, investors have noticed an improvement in the refining industry. The shares of BPCL and HBCL have increased 23% and 16%, respectively, because of the enhancement in gross refining margins.
Presently, the Indian energy space has been witnessing raising interest from investors.
While Adani Gas Ltd and Total SA are on the way to making a gas fuel retail network of 1,500 outlets along highways, Saudi Arabian Oil Co. (Saudi Aramco), the world's largest oil producer is also planning to make its mark in the fuel retailing market in India.
That apart, global energy majors like Rosneft, Kuwait Petroleum, ExxonMobil, Shell, and Abu Dhabi National Oil Co. are considering acquiring the government's stake in BPCL.
Also, the government has given the decision to merge BharatSanchar Nigam Ltd and Mahanagar Telecom Nigam Ltd, its twin state-run telecom companies, to turn around the money-losing firms.
The Cabinet has approved the food ministry's decision to import 120,000 tonnes of onions to improve the key kitchen staple's domestic availability.