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.