BPCL declares record Rs 12,581 cr dividend ahead of privatisation
Bharat Petroleum Corporation Ltd (BPCL) on Wednesday declared a record Rs 12,581 crore dividend, more than half of which will go to the government, ahead of the privatisation of the company. In a regulatory filing, BPCL said its “Board of Directors has recommended a final dividend of Rs 58 per equity share (including one-time special dividend of Rs 35 per equity share of Rs 10 each) for the financial year ended March 31, 2021 subject to the approval of the shareholders.” The dividend works out to Rs 12,581.66 crore, including special dividend of Rs 7592.38 crore. The government, which is selling its entire 52.98 per cent stake in BPCL, will get Rs 6,665.76 crore plus dividend distribution tax. The dividend declared is in addition to the interim dividend of Rs 21 per share paid earlier in the fiscal. The company did not give any reason for declaring the record dividend but the firm had received Rs 9,876 crore from sale of its 61.5 per cent stake in Numaligarh refinery in Assam to a consortium of Oil India Ltd, Engineers India Ltd and the Government of Assam in March. Almost simultaneously, the firm had bought 36.62 per cent of the equity held by OQ S.A.O.C (formerly known as Oman Oil Company S.A.O.C) in Bina refinery for Rs 2,399.26 crore. The net gain made by BPCL after the two deals was Rs 7,477 crore — almost the same amount as the special dividend declared on Wednesday. For the fiscal year ended March 31, 2021 (FY 2020-21), BPCL reported a record standalone net profit of Rs 19,041.67 crore on back of the stake sale as well as higher refining margin resulting from inventory gains accruing from rebounding oil prices. The profit compared with Rs 2,683.19 crore net profit in 2019-20, the filing showed. In the January-March quarter, net profit rose to Rs 11,940.13 crore from Rs 2,777.62 crore a year back. The firm earned USD 4.06 on turning every barrel of crude oil into fuel in FY21 as compared to a gross refining margin of USD 2.50 per barrel a year back. Also, the company made a gain of Rs 199.75 crore on foreign exchange as compared to a loss of Rs 1,662.34 crore in FY20. “The market sales of the Corporation for the year ended 31st March 2021 was 38.74 million tonnes as compared to 43.10 million tonnes achieved during the year ended 31st March 2020. “Decrease is mainly in diesel (-10.66%), petrol (-7.83%), ATF (-60.32%) and partly offset by increase in LPG (6.24%),” the firm said. Commenting on the fourth quarter earnings, BPCL Director (Finance) N Vijayagopal said, “We witnessed a V-shaped recovery in the second half of the financial year resulting in robust growth in fuel sales.” “In an unprecedented year that began with a lockdown across the country and subdued business and economic activities, the fourth quarter was a stand-out quarter that helped the company to report its highest ever growth in bottomline,” he said. BPCL market sales of diesel grew by 5.98 per cent and petrol by 9.89 per cent. “Our debt level has come down to normal level of Rs 26,000 crore,” he said.
Gulf 2021 deficits to fall to $80 bln on higher oil – S&P
Budget deficits of the six Gulf Cooperation Council countries are expected to drop sharply this year, supported by higher oil prices, fiscal consolidation and a rebound in economic output as coronavirus measures are eased, S&P Global Ratings said. The aggregate deficits of the central governments of the GCC are expected at about $80 billion this year from $143 billion in 2020, S&P said in a report on Wednesday. “Nevertheless, still-high GCC central government deficits will result in continued balance sheet deterioration in most cases,” S&P said. But it noted that, with the exception of Kuwait and Bahrain, the countries’ budgetary performance was stronger than in 2016 – the prior oil price crash. The Gulf was hammered by the double shock of a historic crash in oil prices last year as well as the economic impact of the coronavirus pandemic and related health safety measures. Higher oil prices, while supportive for GCC sovereign ratings, have in the past derailed consolidation reforms and therefore led to higher spending or delays in planned fiscal reforms, S&P said. “Many Gulf states have shown spending restraint in response to the double external shocks of 2020 … (and some) have also made inroads to diversifying their government revenue streams away from hydrocarbons,” S&P said. Saudi Arabia tripled a value-added tax last year to boost state finances hurt by the coronavirus crisis and lower oil revenues, while Oman introduced VAT for the first time last month. “We expect fiscal deficits will reduce over 2021-2022 and widen again in 2023-2024 given our oil price assumptions, as well as the gradual tapering of oil production cuts in line with the May 2021 OPEC+ agreement,” the ratings agency said. It assumed a Brent crude price of $60 per barrel for the rest of 2021, the same in 2022 and $55 per barrel from 2023. S&P expected GCC government debt issuance to average about $50 billion per year from 2021 to 2024, compared to $70 billion last year and close to $100 billion in 2017.
Total suspends gas-linked cash payments to Myanmar army
French energy giant Total said Wednesday that Myanmar’s army would no longer receive cash payments linked to a pipeline it operates through a joint venture with the military, following February’s military coup. Total said in a statement the decision was made at a May 12 meeting of shareholders of Moattama Gas Transportation Company Limited (MGTC), a unit that includes the French firm, Chevron, and a military-controlled energy company. “In light of the unstable context in Myanmar… cash distributions to the shareholders of the company have been suspended” effective from April 1, the company said. It added that it “condemns the violence and human rights abuses occurring in Myanmar” and would comply with any potential sanctions against the junta from the EU or US. Total has come under pressure from pro-democracy activists to “stop financing the junta” since a military coup in February which has been followed by a brutal crackdown on dissent. The MGTC pipeline — 15-percent owned by the military-controlled Myanmar Oil and Gas Enterprise (MOGE) — brings gas from the offshore Yadana field operated by Total to Myanmar’s border with Thailand. Total said it would continue to produce gas so as not to disrupt electricity supply in either country. French newspaper Le Monde revealed Total’s involvement in MGTC in early May, also reporting that the company was based in tax haven Bermuda. “The colossal profits of the gas operations do not pass through the coffers of the Myanmar state, but are massively recuperated by a company totally controlled by the military,” Le Monde found. Days after publishing the story, Le Monde said Total pulled several adverts it had planned to run in its pages in the following weeks.
Govt looks exit option while BPCL seeks open offer exemption
Privatisation bound Bharat Petroleum Corporation Ltd is seeking exemption for successful bidder of the company from mandatory open offer to be made to shareholders of two promoted companies – Petronet LNG and Indraprastha Gas Ltd. Sources said, the oil refiner is looking to get the Securities and Exchange Board of India (Sebi) to give exemption for the open offers to the successful bidder of BPCL as already done when ONGC acquired a government stake in HPCL. BPCL is one of the promoters of both PLL and IGL with a shareholding of 12.5 per cent and 22.5 per cent respectively. The promoter status in these companies means that once BPCL changes hands to new entity post the strategic sale process, its new owners will have to make open offer for another 26 per cent stake in both the promoted companies as per SEBI regulations. This would make BPCL’s acquisition expensive by about Rs 20,000 crore for potential bidders that could further deter interest in company in the time of the pandemic. “It is right for BPCL to look for exemption from open offer in case of PLL and IGL. But how this exemption is given, needs to be watched as the earlier experience in case of the ONGC-HPCL deal, the promoters of both the firms were the same i.e. the government of India and there was no change of ownership,” said an energy sector expert not willing to be named. Sources said that open offer exemption has been discussed by BPCL management in their meeting with disinvestment department Dipam. But the thinking in the government seems to be more inclined towards BPCL shedding its promoter status in the two companies by selling stake before its own strategic sale. Both BPCL and Centre do not want to wane investor interest in the refiner as additional spending could make the already large sized deal further expensive. The sale of government’s 52.98 per cent stake in BPCL is valued at about Rs 55,000 crore at the current share trading price. The requirement for making an open offer for additional 26 per cent to minority shareholders of the company will cost an additional Rs 27,000 crore. In addition, if open offers has to be made for additional 26 per cent in PLL and IGL, the spending could go up by another Rs 18,000-20,000 crore. Also, IGL and PLL may not give value proposition to bidders who are mostly eyeing BPCL’s oil refining assets and its large retail network. Sources said that BPCL also does not want to dilute stake in PLL and IGL as it may substantially erode its value.
Abu Dhabi sells $2 billion in bonds despite oil rebound
Abu Dhabi sold $2 billion in seven-year bonds on Tuesday in its first foray into the international debt markets this year, raising cash for state coffers despite a recent rebound in oil prices. The oil-rich emirate sold the bonds at 45 basis points (bps) over U.S. Treasuries. That was tightened from initial guidance of 70-75 bps over Treasuries after the debt sale received over $6.9 billion in orders. The United Arab Emirates, where Abu Dhabi is the capital, was hit hard by the COVID-19 pandemic and last year’s crash in oil prices, but a rebound in global crude demand as economies re-open has reduced the urgency to borrow for budget purposes. “Seven years is the sweet spot in the market right now. A lot of issuers are choosing seven or 12 years because of the macros of rates,” said Zeina Rizk, executive fixed income director at Arqaam Capital, adding some of the funds might end up boosting foreign currency reserves. Citi, First Abu Dhabi Bank, HSBC, JPMorgan and Standard Chartered are joint lead managers and joint bookrunners for the deal, according to a document from one of the banks, seen by Reuters. “This is more of an updating-the-curve kind of issuance. They didn’t have a seven-year paper and hence the curve was being interpolated,” another fund manager said. Brent crude, trading at over $68 on Tuesday, has more than tripled since oil’s crash last year, when Brent fell below $20 a barrel. Abu Dhabi is expected to post a budget deficit of around 43 billion dirhams ($11.7 billion) in 2021 against 37.2 billion dirhams last year, the preliminary prospectus for the new bond offering, reviewed by Reuters, showed. The budget, however, is based on an oil price assumption of about $46 per barrel versus roughly $50 per barrel last year. “This deficit is expected to be funded principally by borrowings,” the prospectus said. Abu Dhabi has become a relatively frequent issuer of U.S. dollar-denominated debt in recent years, and tapped the market three times last year for a total of $15 billion. At the end of 2020, it had $40 billion in outstanding bonds and $3.9 billion in outstanding loans. Outstanding bonds and loans totalled $29.4 billion at the end of 2019, the prospectus showed.
BPCL may sell some stake in IGL, Petronet to shed promoter status
Privatisation-bound Bharat Petroleum Corporation (BPCL) may sell a part of its stake in Petronet LNG and Indraprastha Gas (IGL) to shed its promoter status to obviate the need for its new owner to make open offers for the two gas companies, sources said. BPCL holds 12.5 per cent of shareholding in India’s largest liquefied natural gas importer, Petronet, and a 22.5 per cent stake in city gas retailer, IGL. It is a promoter of both the listed companies and holds board positions. As per the legal position evaluated by Department of Investment and Public Asset Management (DIPAM) – the department running the process for sale of government’s entire 52.98 per cent stake in BPCL – the acquirer of BPCL will have to make an open offer to the minority shareholders of Petronet and IGL for acquisition of 26 per cent shares, three sources with knowledge of the matter said. This is because BPCL is a promoter of the two companies and since there is a change in ownership of the promoter firm, an open offer is triggered under Sebi (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. A way out could be for BPCL to sell a part of its shareholding in the two firms and shed promoter status, thereby obviating the need for open offers, sources said. BPCL, however, is not in favour of selling the stake and giving up promoter status and directorships will result in substantial value erosion for the company. But the thinking in the government is that the open offers for Petronet and IGL may deter bidders who are mostly eyeing BPCL’s oil refining assets and 22 per cent share of the fuel marketing business it commands, sources said. BPCL spokesperson refused comments for the story. The government’s 52.98 percent stake in BPCL is valued at about Rs 54,000 crore at the current share trading price. The requirement for making an open offer for additional 26 per cent to minority shareholders of the company will cost an additional Rs 26,700 crore. On top of it, an open offer for 26 per cent stake in IGL would cost the acquirer an additional Rs 9,400 crore and a similar offer for Petronet would cost over Rs 9,300 crore. Bidders, sources said, may not find BPCL holding stake in Petronet and IGL a value proposition as such a stake does not give them any special rights such as getting preference in importing of LNG at terminals of Petronet or a say in gas retailing by IGL. They said the option of BPCL selling a part of its shareholding in Petronet and IGL has been discussed during meetings with DIPAM. In those meetings, BPCL management highlighted that the best alternative will be to get Securities and Exchange Board of India (Sebi) to give exemption for open offer to the successful bidder of BPCL as already done when ONGC acquired government stake in HPCL. But in case of ONGC-HPCL deal, the promoters of both the firms were the same i.e. the government of India and there wasn’t a change of ownership per se. Sources said BPCL management also pointed out that the Cabinet Committee on Economic Affairs (CCEA) approval for privatisation of BPCL did not mention any reduction in shareholding in Petronet and IGL. Also, the expression of interest (EoI) floated for stake sale in BPCL also did not mention any reduction in shareholding in Petronet and IGL. On these, DIPAM can approach the CCEA again and get a nod for stake sale in Petronet and IGL, they said. Mining-to-oil conglomerate Vedanta and private equity firms Apollo Global and I Squared Capital’s arm Think Gas are in the race to buy government stake in BPCL. The stake sale in India’s second-largest fuel retailer is crucial to plans to raise a record Rs 1.75 lakh crore from disinvestment proceeds in fiscal 2021-22 (April 2021 to March 2022). BPCL will give the buyer ownership of around 15.33 per cent of India’s oil refining capacity and 22 per cent of the fuel marketing share. The buyer of the company will get 35.3 million tonnes of refining capacity — 12 million tonne Mumbai unit, 15.5 million tonne Kochi refinery and 7.8 million tonne Bina unit. BPCL also owns 18,639 petrol pumps, 6,166 LPG distributor agencies and 61 out of 260 aviation fuel stations in the country. The firm also has upstream presence with 26 assets in nine countries such as Russia, Brazil, Mozambique, the UAE, Indonesia, Australia, East Timor, Israel and India. It is also making a foray into city gas distribution and has licences for 37 geographical areas (GAs).
Russia offers cooperation with Saudi Arabia on hydrogen production
Russian Deputy Prime Minister Alexander Novak on Tuesday offered to work with Saudi Arabia on hydrogen production, speaking during an online meeting of the intergovernmental commission of Russia and Saudi Arabia. “We have a proposal to create a working group on hydrogen energy,” Novak said. Hydrogen has gained traction as the future green fuel of choice, increasingly touted as a way to decarbonise emissions-intensive heavy industry and transportation. Oil and gas rich Russia has been slow in developing production of hydrogen gas, a fuel that emits only water vapor and warm air when burned, rather than carbon dioxide. Saudi Arabia, which plans to diversify the economy, is considering several large-scale project to produce hydrogen. Novak said that both Russia and Saudi Arabia have great potential to develop traditional and renewable sources of energy.
Dutch court to rule on case targeting Shell’s climate strategy
A Dutch court will rule on Wednesday in a landmark case in which climate activists seek to force Royal Dutch Shell to speed its cuts to greenhouse gas emissions. Filed by seven activist groups including Greenpeace and Friends of the Earth Netherlands, the lawsuit marks a first in which environmental groups have turned to the courts to try to force a major energy firm to change strategy. It was filed in April 2019 on behalf of more than 17,000 Dutch citizens who say Shell is threatening human rights as it continues to invest billions in the production of fossil fuels. The case was heard in a court in The Hague, where Shell’s headquarters are based. The groups have said they feel encouraged by the so-called “Urgenda” case, in which the Dutch High Court in 2019 ordered the government to step up its fight against climate change, as it said a lack of action was putting Dutch citizens in danger. They are demanding that Shell cut its carbon emissions by 45% by 2030, a much steeper reduction than the company’s current goal of reducing the carbon intensity of the products it sells by 20% over the next decade. A rapid reduction would effectively force the Anglo-Dutch firm to quickly move away from oil and gas. Shell, which plans to achieve net zero carbon emissions by 2050 or sooner, has said court action will not accelerate the world’s transition away from fossil fuels. The world’s top oil and gas trader, Shell has said its carbon emissions peaked in 2018, but intensity-based reduction targets allow it in theory to expand its oil and gas output. The plaintiffs claim that Shell’s climate strategy is not in line with the U.N.-backed 2015 Paris climate agreement to limit global warming to 1.5 degrees Celsius above pre-industrial levels. Shell says its 2050 net zero target is aligned with the Paris agreement and that it will move “in step” with society’s progress in the energy transition. It said in a statement it agrees “that action is needed now on climate change. What will accelerate the energy transition is effective policy, investment in technology and changing customer behaviour. None of which will be achieved with this court action.” In February Shell updated its plan to tackle climate change, saying it planned to curb its emissions through rapid growth of its low-carbon businesses, including biofuels and hydrogen. Although the company said its oil output peaked in 2019, its spending will remain tilted towards oil and gas in the near future.
‘Clean Data Room’ with sensitive info on BPCL to open for bidders signing additional pact
Bidders vying to buy government stake in Bharat Petroleum Corporation Ltd (BPCL) will be given access to a ‘Clean Data Room’ containing commercially sensitive information on the firm subject to their signing an additional confidentiality agreement, sources said. A virtual data room, mostly containing financial information on BPCL, was opened in the second week of April and qualified bidders signing Confidentiality Undertaking (CU) have been given access, three sources with direct knowledge of the matter said. Bidders which include mining-to-oil conglomerate Vedanta and private equity firms Apollo Global and I Squared Capital’s arm Think Gas will also be allowed physical inspection of assets such as refineries and depots in the coming weeks as part of the due diligence process. The government will seek financial bids once bidders complete due diligence and terms and conditions of the share purchase agreement (SPA) are negotiated. Sources said certain data which is commercially sensitive will be uploaded in a separate section of the data room referred to as ‘Clean Data Room’ and access shall be extended only to the designated team of lawyers of the qualified bidders in the interest of confidentiality and prevention of misuse of data. A separate agreement restricting use of the data and maintaining confidentiality will have to be signed by the bidders for accessing the ‘Clean Data Room’, they said. The data room access for due diligence is likely to be available for a period of around 8 weeks. As part of the due diligence process, the bidders want to undertake a physical visit to some of the major sites like refineries and depots/plants. While BPCL will facilitate such visits, an approval from the Ministry of External Affairs (MEA) is required in case any foreign passport holder wants to visit sensitive locations like refineries, sources said. Also, representatives of bidders would be allowed to hold virtual meetings with management of BPCL once the silence period till the announcement of annual financial results of the company for 2020-21 are announced. All queries raised by the bidders during the due diligence are being collated by the transaction advisor, Deloitte and they will be answered by the company management or the concerned government department depending on the nature of the issue, sources said. The government’s 52.98 per cent stake in BPCL is valued at about Rs 530 billion based on Friday’s closing price of company shares on BPCL. The stake sale in India’s second-largest fuel retailer is crucial to plans to raise a record Rs 1750 billion from disinvestment proceeds in fiscal 2021-22 (April 2021 to March 2022). Sources said the recent Covid-19 outbreak could still slow down the sale process as physical visits may be hindered. A special purpose vehicle floated by the BSE-listed Vedanta Ltd and its London-based parent Vedanta Resources Plc submitted an expression of interest (EoI) for buying government stake in BPCL before the close of the deadline on November 16, 2020. While I Squared Capital is a private equity firm focusing on global infrastructure investments, New York-based Apollo Global Management, Inc is a global alternative investment manager firm. I Squared Capital invests in energy, utilities, transport and telecom projects in North America, Europe and select high growth economies such as India and China. Vedanta’s interest in BPCL stems from its USD 8.67 billion acquisition of oil producer Cairn India nearly a decade back. The company produces oil from oilfields in Rajasthan which are used in refineries such as those operated by BPCL to turn them into petrol, diesel and other fuels. BPCL will give the buyer ownership of around 15.33 per cent of India’s oil refining capacity and 22 per cent of the fuel marketing share. The buyer of the company will get 35.3 million tonnes of refining capacity — 12 million tonne Mumbai unit, 15.5 million tonne Kochi refinery and 7.8 million tonne Bina unit. BPCL also owns 18,639 petrol pumps, 6,166 LPG distributor agencies and 61 out of 260 aviation fuel stations in the country. The firm also has upstream presence with 26 assets in nine countries such as Russia, Brazil, Mozambique, the UAE, Indonesia, Australia, East Timor, Israel and India. It is also making a foray into city gas distribution and has licences for 37 geographical areas (GAs).
Government Bullish On Asset Monetisation Programme?
In the Union Budget 2021-22, the Centre had proposed to launch a National Monetisation Pipeline to assess potential value of underutilised assets. In its Union Budget for 2021-22, the Centre had announced that several of its core assets will be rolled out for financial fruition under the Asset Monetisation Programme. While the Government has earmarked several blue-chip sectors under this programme, in the energy sector, oil and gas pipelines of Gas Authority of India Ltd, Indian Oil Corporation Ltd and Hindustan Petroleum Corporation Ltd are to be monetised. The Government plans to generate ₹ 17,000 crore through monetising the abovementioned assets in the current fiscal (2021-22). To achieve this aim, Gas Authority of India Ltd has identified two pipelines and is in the process of setting up an infrastructure investment trusts or InvITs for the purpose. Indian Oil has identified two hydrogen plants and a pipeline for monetising while Hindustan Petroleum too has initiated action to identify assets for monetisation. What is Asset Monetisation Programme? In the Union Budget for 2021-22, the Government had proposed to launch a ‘National Monetisation Pipeline’ to assess the potential value of underutilised and unused government assets. To keep the whole process transparent, an asset monetisation dashboard was proposed to be created to track the progress and provide visibility to investors. Soon after the Budget, the Prime Minister had said that the plan is to monetise 100 government and PSU-owned assets worth ₹ 2.5 lakh crore for ‘investment opportunity’. The plan is to continue for the next five years. As part of this ambitious plan, the Ministry of Road Transport and Highways has been set a target to raise ₹ 30,000 crore through asset monetisation over the next three years, while other key economic ministries including the Petroleum Ministry too have been given such ambitious targets. What are InvITs? To achieve success under the Asset Monetisation Programme, the Government is looking at the Infrastructure Investment Trusts or InvITs route. Under InvITs, the land assets are transferred to a trust providing investment opportunity for institutional investors. InvITs are collective investment vehicles, similar to a mutual fund, which enables direct investment of money from individual and institutional investors in infrastructure projects to earn a small portion of the income as return. InvITs enable developers of infrastructure assets to monetise their assets by pooling multiple assets under a single entity (trust structure). In India, InvITs are governed by SEBI (Infrastructure Investment Trusts) (Amendment) Regulations, 2016.