BPCL gets Cabinet approval for additional equity investment in E&P arm, Mozambique LNG project

Will the move help raise the PSU’s valuation, wonder market watchers

The Cabinet Committee on Economic Affairs (CCEA) is understood to have given its nod for additional investment of $2,670 million by Bharat Petro Resources Ltd (BRPL), a wholly-owned subsidiary of Bharat Petroleum Corporation Ltd (BPCL), for a LNG project in Mozambique.

The CCEA, which had met on Wednesday, is also said to have given the green signal for additional equity investment of 10,000 crore by BPCL into the equity share capital of BRPL, sources told BusinessLine. There was no official communication on the decision by the government.

Why this when the government is preparing to sell its stake in BPCL? What does it gain?

These decisions should not come as a surprise if one sees them as purely business, as for any company into oil and gas sector investments are constant. Development projects have their own timeline for cash calls and investments cannot be deferred.

But, if one goes by the timing, this will definitely help upping the valuation of the company when the prospective bidders assess the assets which BPCL has. One should remember that when a bidder does its due diligence it is not just based on the market cap of the company. Buyers have many other questions to ask on the balance-sheet of a company on sale.

The investment will definitely enhance the potential, market watchers say. However, there is also another aspect — Maharashtra, which is an important State for the revenue flow into Delhi, has undergone a shift in political dynamics. Maharasthra is where BPCL is headquartered. During the course of disinvestment, the State could find ways of being a party spoiler.

So, investments like this can offer cushion when valuation is done. Ideally even the market should factor in such investments. Currently, the industry feels that depending on the competitive intensity during bidding, the proceeds the government is likely to garner for a full-stake sale could be in the range of 60,000-70,000 crore.

Whether these announcements will be see an uptick in investment only time will tell, as the Department of Investment and Public Assessment Management (DIPAM) prepares for the stake sale. Last month, DIPAM had called for request for proposals for appointments of advisors for strategic disinvestment, legal and one asset valuer for the purpose.

BPCL divestment

Finance Minister Nirmala Sitharaman had indicated recently that the government would like to finish the entire process this fiscal. BPCL disinvestment is to happen in two parts: Strategic disinvestment of the government’s shareholding of 53.29 per cent in BPCL — except BPCL’s equity shareholding of 61.65 per cent in Numaligarh Refinery Ltd (NRL) and management control thereof; and BPCL’s shareholding of 61.65 per cent in NRL along with transfer of management control to a central public sector enterprise operating in the oil and gas sector.

The Wednesday CCEA nod is said to be for additional investment by BPRL in the 2-Train initial LNG project and pre-development activities for the subsequent Trains for development of gas resources in Offshore Area 1, Rovuma Basin, Mozambique. BPRL holds 10 per cent participating interest in the project along with ONGC Videsh, the overseas investment arm of ONGC, which holds 10 per cent. Besides, OVL and Oil India Ltd jointly hold another 10 per cent (6 per cent OVL and 4 per cent OIL).

The current operator of the Area 1 project is Total SA (26.5 per cent). The other concessionaires in the project are Mitsui (20 per cent), Mozambique State Energy Company ENH (15 per cent) and Thai company PTTEP (8.5 per cent).