BPCL Writes To SEBI Seeking Exemption From Open Offer For Listed Joint Ventures

A motorcylcist rides past a Bharat Petroleum Corp. gas station in Pune, Maharashtra. (Photographer: Dhiraj Singh/Bloomberg)

BPCL Writes To SEBI Seeking Exemption From Open Offer For Listed Joint Ventures

Divestment-bound Bharat Petroleum Corp. has written to the market regulator seeking exemption to the regulation that its new owner would have to make an open offer to minority shareholders of two companies in which it’s a promoter—Petronet LNG Ltd. and Indraprastha Gas Ltd.

BPCL has applied for clearance from Securities and Exchange Board of India, requesting that there needn’t be an open offer as these are joint ventures of three companies, and any open offer would upset that, a senior finance ministry official told BloombergQuint on the condition of anonymity.

The oil refiner and marketer holds 12.5% stake in Petronet LNG and 22.5% stake in IGL and is a promoter for both companies, which means the new buyer would require to make an open offer to purchase 26% in the two companies.

The official said potential buyers for BPCL would have to make an open offer for the two promoter firms, which would cost them more.

The current guidelines require a strategic buyer of BPCL to make an open offer of 26% once the financial bid is accepted. It also requires an open offer for BPCL board-controlled subsidiaries and associates.

The government is planning to sell its 52.98% stake in BPCL as part of its divestment, for which it has received multiple bids.

Queries emailed to SEBI and BPCL on Friday remained unanswered.

Complex Matter

SEBI has in the past exempted certain transactions from this regulation as in the case of Oil and Natural Gas Corp. buying 51% stake in Hindustan Petroleum Corp. for Rs 36,915 crore two years ago.

However, granting an exemption may be difficult in the case of BPCL.

This is different from the ONGC-HPCL deal because ultimate control in that transaction remained with the government, said Sandip Bhagat, partner at S&R Associates. “The other way is BPCL first gets out of the promoter classification tag from these two entities before there’s a change in control at the BPCL level,” he said. “This would have commercial considerations since it would involve the sale of BPCL’s shares in these two entities such that its ownership is reduced below 10% and there is a timing issue of obtaining board and shareholder approvals as part of the reclassification process.”

Without the open offer exemption, the government’s stake sale in BPCL will potentially be costly for the buyer, Nishant Singh, partner at IndusLaw, told BloombergQuint, adding the deal will automatically trigger the change of promoter of Petronet LNG and Indraprastha Gas.

One of the core protections for the minority shareholders under the SEBI Takeover Code is that if the promoter/control changes, the minority shareholders need to be offered an exit option. If the SEBI grants a blanket exemption to the BPCL deal, it would undoubtedly violate the basic principles of the Takeover Code. Perhaps, it would be better for the government to find a structure to jettison its promoter status in PLL and IGL before the BPCL deal.
Nishant Singh, partner at IndusLaw

Bhagat agreed. “To me, given the policy reasons behind the tender offer regulation, simply because this transaction increases the cost of acquisition at the BPCL level should not be reason enough to give a specific exemption for a tender offer,” he said. “If there is a greater policy push to get the privatisation done, then that has to be balanced with minority public investor protection and their right to get an exit if there is a change of promoter.”

The regulator will likely need to have justified reasons to grant a specific exemption, such that it’s not unfair to the minority investors in Petronet and IGL and doesn’t appear to set a precedent for treating government companies and non-government companies differently for purposes of the takeover regulations.
Sandip Bhagat, Partner at S&R Associates

According to the official cited earlier, exemption on the transaction is crucial because requirement for an open offer for the two promoter companies would mean the stake would be far more than BPCL compared to the other two joint venture partners.

In that case, the entire agreement, which is based on certain considerations on how the sector will develop, will be put to test because proportion will not remain the same, the official said.

BPCL has already sold its entire 61.5% stake in Numaligarh Refinery in Assam to a consortium of Oil India Ltd. and Engineers India Ltd. and Government of Assam paving the way for the divestment process.

The official said BPCL won’t sell its stakes in either Indraprastha Gas or Petronet LNG ahead of the privatisation.

They’re joint venture partners, the official said, and Numaligarh refinery had to be kept out. The official said it’s like the government exiting management and someone else coming in, rest stays the same.

Last month, N Vijayagopal, director finance at BPCL, told BloombergQuint that BPCL will not sell its investments in state-run gas firms ahead of its planned privatisation.

The government expects to conclude divesting its stake in BPCL within the ongoing fiscal despite the second wave of the Covid-19 pandemic delaying it, the ministry official said.

The government aims to raise Rs 1.75 lakh crore through disinvestment in 2021-22—more than five times the amount it raised last year.

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