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Current Affairs

Bharat Petroleum divestment

Date: 20 November 2020 Tags: Miscellaneous

Issue

The disinvestment process of Bharat Petroleum Corporation Ltd has moved on to the second phase, with the government receiving multiple expressions of interest for its stake.

 

Details

  • Currently, only the Vedanta Group has been confirmed as an interested party. Experts noted that given the low level of participation BPCL was likely to result in a low valuation. 

  • Impact of the Covid-19 pandemic and subsequent crash in global crude oil prices has put a strain on the finances of most global oil majors. The price of crude oil fell sharply as a result of the fall in the demand for petroleum products.

  • Planned investments by Saudi ARAMCO into Reliance Industries and the Ratnagiri refinery complex have seen delays.

  • The government may rope in other public sector undertakings like ONGC and Indian Oil to participate in another round of bidding for BPCL if it doesn’t receive a high enough valuation.

  • Under the terms of the current bidding process, PSUs were not been permitted to participate in BPCL’s disinvestment process.

  • If a combination of ONGC and IOC acquire the government’s stake in BPCL at a higher premium than what is being offered by private sector players, they would likely witness a decline in their share prices.

  • It is not likely that the government would put off the disinvestment process of BPCL because of a lack of interest as it needs the proceeds from the sale to shore up its fiscal deficit.

 

Divestment

  • Divestment is the process of selling subsidiary assets, investments, or divisions of a company in order to maximize the value of the parent company.

  • Divestment is effectively the opposite of an investment and is usually done when that subsidiary asset or division is not performing up to expectations.

 

Strategic sale

  • Strategic disinvestment is transferring the ownership and control of a public sector entity to some other entity (mostly to a private sector entity).

  • It involves selling of 50% of stake or such higher percentage as the competent authority may determine, along with transfer of management control.