Multiple steps remain in BPCL's divestment: Fitch

Singapore, March 26 : There has been progress in Bharat Petroleum Corporation Ltd's (BPCL's) disinvestment following developments on key queries raised by potential buyers but multiple steps of the process remain outstanding, according to Fitch Ratings.
"There are still questions that require further clarity and we will continue to monitor the situation and consider suitable rating action as and when there is progress," it said in a non-action rating commentary.
BPCL has made headway on a key pre-condition to its divestment and other key milestones over the last six weeks, including the finalisation of terms to purchase Oman Oil Company's 36.6 per cent stake in its Bina refinery for Rs 2,400 crore in February.
BPCL also sold 5.8 per cent of its 7.3 per cent treasury shares for Rs 5,500 crore and approved the sale of its 61.7 per cent stake in Numaligarh Refinery Ltd (NRL) for Rs 9,900 crore in March.
The current book value of BPCL's NRL investment is R 450 crore and the transaction will be subject to 20 per cent long-term capital gains tax on the consideration value less the indexed cost of the acquisition and improvement as ascertained by the company.
This results in net proceeds of Rs 13,000 crore for BPCL, less the long-term capital gains tax, although the timing of each transaction may vary.
The impact on BPCL's standalone credit profile will depend on extent to which proceeds are used to reduce debt or make dividend payments in the coming year. It declared an interim dividend of Rs 1,100 crore on March 16.
However, said Fitch, there is still little information about bidders, valuations or potential restrictions for the new owner in relation to employee protection, asset stripping and investment lock-in.
Fitch said it is also monitoring the progress on interested parties receiving security clearances from the government, access to data room, start of due diligence process, reserve-price disclosure by the government, submission of financial bids by bidders and solicitation of lenders' consent should a winning bid be selected.
BPCL's bonds, which had 2 billion dollar outstanding as of end-2020, will need to be refinanced or the holders' consent solicited, should the government accept a winning bid triggering the change of control clause.
"We believe the extent of refinancing or consent will depend on BPCL's rating at the time. We do not expect the government to halt the sale should it be dissatisfied with the financial bids, given its budgeted disinvestment target and strongly articulated intent, but this could prolong the process."
Fitch said there is a need for further clarity on future of subsidies paid to BPCL's customers on sale of liquified petroleum gas and kerosene as well as freedom on pricing of petrol and diesel before the divestment can conclude.
The government has traditional used oil marketing companies including BPCL to carry out its socio-political agenda but private companies may be less inclined to bear such regulatory risk.
The sale of government's entire shareholding in BPCL will lead to reassessment of BPCL's ratings, based on reassessment of its standalone credit profile and nature of potential buyers including the credit quality of any majority parent and Fitch's assessment of strength of linkages between the new parent and BPCL.