Stiff riders for buyers of Air India, BPCL

The government is selling its entire 100 per cent stake in Air India but wants effective control to stay with Indian nationals.

Buyers of loss-making airline Air India and oil firm Bharat Petroleum Corporation Ltd (BPCL) will not get a free hand to shed excess workforce as the government will build in certain protection to employees in the share sale agreement, DIPAM Secretary Tuhin Kanta Pandey said.

Public sector companies often have more people on rolls than their private sector counterparts and companies wanting to take them over would likely right-size them to remove inefficiencies.

In an interview with PTI, the Secretary of the Department of Investment and Public Asset Management (DIPAM) said the government will follow a two-stage bidding process for selling its entire holding in Air India and BPCL.

First preliminary interest from potential bidders is invited, followed by them being given access of data room on the companies for due diligence. In the second stage, price bids are invited.

While in the case of Air India, the expression of interest (EoI) has been invited by March 17, an offer seeking the same for BPCL is likely to be floated in the next few days.

Asked if the bidders will get a free hand to right-size the companies after the acquisition, Pandey said, "There will be certain protection to employees and there will be other conditionalities and this will be listed out in the share purchase agreement (SPA)."

He did not give details of the conditionalities.

An SPA will be signed with the acquirer who offers the highest bid for buying out government stake.

The government is selling its entire 100 per cent stake in Air India but wants effective control to stay with Indian nationals.

The airline, which started as a Tata Airlines in 1932 and was later acquired by the government, has not made profits since 2007. It has a total debt of Rs 60,074 crore, of which bidder has to takeover Rs 23,286.5 crore.

In the case of BPCL, the government is selling its entire 53.29 per cent stake in the company that will give buyers ready access to 14 per cent of India's oil refining capacity and about one-fifth of the fuel market share in the world's fastest-growing energy market.

"There is a two-stage process. There will be EoI and request for proposal or RFP (in the first stage) and due diligence-cum-bidding stage (in the second)," Pandey said.

"After the bidding stage, the highest bidder (will be identified). The highest bidder meeting the reserve price will sign the SPA."

Asked about concerns over valuation of BPCL, he said DIPAM has valuation methodologies.

"There is an independent asset valuer and then there is a transaction advisor who will do the business valuation. Then, the value will be arrived at. But, this valuation or the reserve price will not be revealed unless the financial bids are received."

Officers' unions of blue-chip public sector undertakings (PSUs) have opposed the government's decision to privatise India's second-biggest oil firm BPCL, saying family silver worth Rs 9 lakh crore is being sold for a fraction of the amount.

"Our comprehensive evaluation of the assets of BPCL reveals true worth of BPCL to be Rs 9 lakh crore. Today's market cap of BPCL is Rs 1.06 lakh crore," Mukul Kumar, convenor, Federation of Oil PSU Officers and Confederation of Maharatna Companies, have said.

BPCL has a market capitalisation of about Rs 1 lakh crore and the government stake at current prices is worth about Rs 54,000 crore.

The successful bidder will also have to make an open offer to other shareholders for acquiring another 26 per cent at the same price.

Privatisation of Air India and BPCL is essential for meeting the record Rs 2.1 lakh crore target Finance Minister Nirmala Sitharaman has set from divestment proceeds in the Budget for 2020-21.

This is the second attempt for sale of Air India after the failed attempt in 2018.

Losses notwithstanding, it has some lucrative assets that include prized slots at London's choked Heathrow airport, a fleet of more than 100 planes and thousands of trained pilots and crew.

BPCL operates four refineries in Mumbai, Kochi (Kerala), Bina (Madhya Pradesh) and Numaligarh (Assam) with a combined capacity of 38.3 million tonnes per annum, which is 15 per cent of India's total refining capacity of 249.4 million tonnes.

While the Numaligarh refinery will be carved out of BPCL and sold to a PSU, the new buyer of the company will get 35.3 million tonnes of refining capacity.

It also owns 15,177 petrol pumps and 6,011 LPG distributor agencies in the country.

Besides, it has 51 LPG (liquefied petroleum gas) bottling plants.

The company distributes 21 per cent of petroleum products consumed in the country by volume as of March this year and has more than a fifth of the 250 aviation fuel stations in the country.