Govt Wants PSU Control of Petronet, IGL to Stay Post BPCL Open Offer

Govt Wants PSU Control of Petronet, IGL to Stay Post BPCL Open Offer

Promoters of IGL, Petronet may be asked to make open offers either in concert or in competition with the strategic buyer of BPCL

The government may ask public sector promoters of IGL and Petronet LNG to make open offers to the minority shareholders of these companies either in concert or in competition with the strategic buyer of BPCL to ensure state companies do not lose control of gas firms, said people familiar with the matter.

BPCL is a co-promoter of IGL along with GAIL while in Petronet it shares ownership with GAIL, Indian Oil Corporation and ONGC. The buyer of the government’s entire majority stake in BPCL, currently on offer, will also become a promoter of IGL and Petronet, and so must make an open offer to the minority shareholders of these companies. Since these offers would add an extra financial burden on the BPCL buyer and may result in loss of state firms’ control over important gas firms, the government had sought a waiver on open offers from the market regulator.

Examining 2 Options

But stock market regulator Sebi has now indicated to officials that it may not grant exemption to the new owner of BPCL from making an open offer to shareholders of IGL and Petronet as it would set a burdensome precedent, said the people.

“The minority shareholders need to be protected,” said one of the persons, who did not wish to be identified, explaining the reason for the likely rejection of the exemption request. A formal rejection is yet to come, he said.

Since open offers for IGL and Petronet now look inevitable, the government is examining two options. One is to convey to the new owner as part of the BPCL share purchase agreement that it would have to make open offers in concert with state-run companies that are co-promoters in IGL and Petronet, said a person aware of the matter. The second is to let the BPCL buyer make open offers and then get state-run co-promoters to launch counteroffers, he said.

“The aim is to make sure state-run companies stay in control of IGL and Petronet, which are very good assets,” said the person cited above.

In the first option, all co-promoters will end up with equal stakes after the conclusion of the open offers. Also, the financial burden of open offers will be split between state-run companies and BPCL’s new owner.

At current market prices, the open offer to acquire 26% stake in both IGL and Petronet would cost about Rs 19,000 crore. This is on top of Rs 83,000 crore that the strategic buyer will have to shell out for the government’s 53% stake and an open offer for an additional 26% in BPCL at the current share prices.

IGL and Petronet are not ‘public sector enterprises’ but are largely guided by the government. Petroleum secretary chairs the board of Petronet, which is India’s largest natural gas importer. IGL is one of the biggest city gas distributors. The two companies are important to the government as it aims to turn India into a gasbased economy. The government has set a target to raise the share of natural gas in the country’s energy mix to 15% by 2030 from 6% now.

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