BPCL's stake in KRL may be divested

Divestment in public sector companies may be on hold but the Centre's holding in Bharat Petroleum Corporation Ltd will slip to 54.93 per cent from 66.20 per cent once the company merges with Kochi Refinery Ltd.

As part of the amalgamation scheme, the petroleum ministry has sought Cabinet approval for transferring BPCL's shares in KRL to a trust.

These shares could be sold later and used for financing a modernisation programme for the Rs 7,400-crore (Rs 74 billion) Bina refinery and KRL, estimated to cost Rs 3,000 crore (Rs 30 billion), the ministry's Cabinet note said.

The finance ministry had opposed the move to transfer the shares to a trust and had instead proposed that BPCL should extinguish its shares in KRL -- a move that would have resulted in the government's holding in BPCL being reduced to 60.58 per cent. But the petroleum ministry favoured the other route to support BPCL's capex plans.

The ministry proposed that the existing shares of BPCL, accounting for 54.81 per cent stake in KRL, be transferred to a trust in the ratio of 1:2.25. The boards of the two companies had approved a swap ratio of 4:9 in January.

The finance ministry had also questioned the swap ratio and had suggested that it should be based on the networth of the two companies. It had said the net asset value-based valuation should be cross-checked with the discounted cash flow method.

The petroleum ministry feels that the swap ratio is based on weighting given to different methods. Also, the use of the NAV method would mean that the government's holding in BPCL after the merger would be 53.62 per cent against 54.93 per cent under the proposed mechanism, it said.

The petroleum ministry also rejected the finance ministry's proposal for seeking special dividends from KRL prior to the merger.

The petroleum ministry is of the opinion that the Centre does not stand to gain from the move since it does not hold shares directly.

Besides, the move would suck liquidity out of both the companies, it said. Cabinet approval has also been sought for the appointment of a Kerala government nominee on the BPCL board. This is a condition put up by the state government for giving its consent to the merger.

The finance ministry and the department of public enterprises have expressed reservations on this issue, saying that the Kerala government does not merit a representation on the BPCL board because it will hold less than 1 per cent in the merged company.

The ministry has also proposed a Rs 150-crore (Rs 1.5 billion) to Rs 450-crore (Rs 4.5 billion) increase in BPCL's authorised capital to facilitate the issue of shares to KRL shareholders in the swap ratio.