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Energy: Stand alone's in the news… - Views on News from Equitymaster
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  • Mar 23, 2001

    Energy: Stand alone's in the news…

    The stand alone refineries, over the last few days, have been on the upper circuit with the Bharat Petroleum board (BPCL) approving the acquisition of the Government's 55% stake in Kochi Refineries (KRL). The Indian Oil Corporation (IOC) board is likely to meet on March 26 to ratify the acquisition of the Government's stake in Chennai Petroleum (CPCL) and Bongaigaon Refinery and Petrochemicals (BRPL).

    These stocks have rocketed as the Government's share in KRL is being acquired at Rs 86 a 52% premium to the current market price (10.3% discount to book value). We have assumed a similar pattern in the exercise carried out. The purchase price are at large premium to the market price. However, there has been no mention of a (open offer) buyback from the markets. It is argued that the share purchase does not result in transfer of management and hence the takeover code is not applicable.

    Refining Capacity
    Owned 6.9 35.5
    KRL 7.5 -
    NRL 3.0 -
    CPCL - 7.0
    BRPL - 2.4
    Aggregate Capacity 17.4 44.9
    Marketing Capacity* 19.6 31.7
    Refining / Marketing ratio 0.9 1.4

    *Estimates: Volume sales are divided between retail and industrial segments in 70:30 ratio

    No. of shares (m) 137.8 147.2 199.8
    Government holding 55.0% 52.5% 74.5%
    Shares acquired (m) 75.8 77.3 148.8
    Purchase price* (Rs) 86.0 70.4 27.8
    Acquisition cost (Rs m) 6,522.7 5,441.6 4,136.3
    CMP (Rs) 56.6 36.1 8.3

    * Purchase price at 10% discount to book value

    Consequently, these counters are now seeing the lower end of the circuit band as markets realise that there is not going to be an open offer and hence no arbitrage opportunities. However, the purchase price could be indicative of the real value of the stocks. But with the Government involved and the lack of transparency in the deal, the markets maybe apprehensive about the parameters guiding the valuations.

    The sale of stake is similar to the transfer of shares between oil majors in 1998 leading to cross holdings. But more importantly it let the Government's books record capital receipts bringing down the fiscal deficit. However, in the current case the Government has a higher objective of strengthening the petroleum sector prior to the deregulation.



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