Indian oil disinvestment expected to attract global majors
NEW DELHI: India Sunday allowed disinvestment of Hindustan Petroleum Corporation Ltd (HPCL) through strategic sale and of Bharat Petroleum Corporation Ltd (BPCL) via public offering.
"There is bound to be aggressive bidding, with a major player like Reliance Industries in the fray," said Rajeev Thakur, energy expert with leading information and credit rating agency ICRA Ltd.
"Many global players would definitely be in the fray with government not seeking any commitments on future investments or bank guarantee."
"The government decision not to seek any bank guarantee from potential investors or commitment for making 20 billion investment in the oil sector either by way of infrastructure or exploration is bound to attract more serious players interested in downstream Indian petroleum market," said Thakur.
Unlike bidders for other public sector units, a strategic bidder for the 34.01 percent stake that is to be disinvested in HPCL would also not be required to give a bank guarantee of 5 billion.
In the case of BPCL, the government will make a public offering in domestic and international markets for 35.2 percent stake on a date yet to be finalised, Disinvestment Minister Arun Shourie has said.
"Foreign companies like (Dutch major) Shell could be interested in the disinvestments depending on the share price being offered," said R. K. Sinha of New Delhi-based Centre for Policy Research.
"With India seen as a growing market, there is bound to be interest among foreign oil majors in getting a slice of the marketing infrastructure of the companies on the block."
With margins in refining low and subdued, and value addition also small, experts feel new investors are not likely to be interested in adding more refining capacity through completion of the Bina and Bhatinda refinery projects.
"Instead it would be the huge retail marketing sector, with potential for further expansion, that would attract big players awaiting a route to the Indian petroleum market," said Thakur.
Competition will spruce up the market, as everybody will have to bring in more efficiency in retail and trading to increase profit margins while offering better services to consumers, feel experts.
The long-awaited government decision on divestment is also expected to boost the stock market, with considerable anticipation in the shares of BPCL, when the issue offer opens in the domestic and international market.
Said market analyst Chandra Shekhar Chaudhury, "The fact that the disinvestment decision has been taken early in the calendar year when major international fund managers are in the process of finalising their plans is bound to send a positive signal."
The decision is expected to work in India's favour all the more because a transparent strategic investment route has been adopted in the case of HPCL and state-owned companies have been kept out.
"While international companies would definitely be willing to pay a high price for the marketing infrastructure, the refining units of the two companies may not be such an attractive investment proposition for companies with their own capacity in the region, particularly the Middle East," said Chaudhury.
Political resistance had delayed the sale of the two companies for almost a year. While the route to disinvestment of the two oil companies has been decided, no timetable has been set on when the process will be taken up.
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