A heated competition is expected among all interested parties driving up valuation for the state-run refiner BPCL, say industry experts.
As the government is set to sell its entire 52.98 per cent stake in India's second largest fuel retailer Bharat Petroleum Corporation Limited (BPCL), Mining-to-oil conglomerate Vedanta, private equity firms Apollo Global and I Squared Capital's arm Think Gas have submitted bids for the same.
According to analysts, the entry of marquee private equity players Apollo and I Squared, having experience in the energy sector, in the BPCL disinvestment process has given new dimension to the whole exercise.
Apollo is a major player with a $77 billion private equity portfolio, and an energy-savvy investor. Among its most notable investments, Apollo acquired LyondellBasell (RIL was also interested) under bankruptcy in CY09, which yielded 6X returns when they exited in CY14 for $12 billion.
Further,I Squared, though smaller with $13 billion asset under management (AUM), is also a focused player in energy and utilities, and has generated 30-40 per cent CAGR returns in certain investments in the sector.
These two are expected to heat up competition along with Vedanta which has also put its hat in BPCL disinvestment and plans to aggressively to take control of the prized fuel refiner. Reports suggest that the company plans to raise $8 billion through a mix of debt and equity to secure funds for the acquisition of BPCL.
According to a report by Emkay Global Financial Services, BPCL presents attractive investment opportunity to investors due to the company's investment in other oil companies in India that could raise income for the buyers.
The brokerage said that if the buyer decides to sell off investments (like PLNG, IGL, Oil India, upstream, etc.) and is able to source funds at 7 per cent cost, it can buy BPCL at an attractive price of Rs 500 per share as residual dividend income of Rs 3,500 crore would be sufficient to service annual cost of funding.
It is expected that a new private owner can enhance cash flow generation more than estimates through efficiency, capital reallocation and lower cost leverage.
Government is selling its entire 53.29 per cent stake in BPCL to a private sector strategic investor. The first round of the bidding process (EoI) had been competed last month and government would invite price bids from qualified investors.