Apollo Global enters race for BPCL stake

Mumbai | New Delhi: Apollo Global Management has submitted an expression of interest (EoI) for the government’s 53 per cent stake in Bharat Petroleum Corp Ltd (BPCL), said people with knowledge of the matter. The move underscores the growing appetite of the Wall Street buyout group founded by Leon Black for big-ticket deals in India after having recently dissolved its joint venture platform Aion Capital with ICICI Venture. Apollo will compete with Anil Agarwal’s Vedanta that has also confirmed its participation at this stage. It’s likely to partner with a global energy major ahead of its final offer, said the people cited above. Potential bidders have 45 days after submitting the EoI to put together a consortium. Bid dates are not yet clarified but are expected in March 2021. Apollo has a dedicated natural resources investment franchise with $5 billion of assets under management, owning oil and gas assets predominantly in the Americas. Its flagship PE fund had pipped Reliance Industries Ltd for Lloyndell Bassel in 2010, eventually making a $10 billion profit out of the deal, the biggest in the Wall Street history by a buyout group.At Monday’s closing price of Rs 394.55 on the BSE, the government’s stake in BPCL is worth Rs 45,276 crore. 79380149Open Offer MustApart from a control premium, any acquirer will have to make an open offer for 26 per cent from the public — worth Rs 22,252 crore at current prices.Apollo and the Department of Investment and Public Asset Management (Dipam) didn’t respond to queries.In September, Apollo forged a $5.5 billion real estate investment partnership with Abu Dhabi National Oil Company (ADNOC), one of the big Gulf oil companies that was originally expected to join the race for BPCL.Government officials handling the sale have not revealed the identities of investors that submitted EoIs by the November 16 deadline, only saying they had got three to four from global funds and a major foreign company. Pan-India FootprintFor funds like Apollo, BPCL’s pan-India footprint of 17,138 petrol pumps, 6,151 LPG distribution agencies and 61 out of 256 aviation fuel stations, along with the associated infrastructure of pipelines, depots and storage, is a bigger attraction than its 35.3 million tonnes of refining capacity, especially when investors are unwinding fossil fuel exposure globally, analysts said. BPCL is India’s second-largest oil marketing company with standalone domestic sales volume of over 43.10 million tonnes and a market share of 22 per cent in FY20. It’s also the country’s sixth-largest company by sales.Even if oil demand in India peaks, oil marketing companies such as BPCL will remain value accretive, said Elara Capital analyst Gagan Dixit, in a market with high entry barriers. Demand for crude is expected to rise slowly until it peaks by 2030, according to BP Energy Outlook. But, at least for the next decade, it’s going to continue upward in the third-largest oil consuming market.“With private investors, more focus could be on high demand market and differential pricing, which could improve BPCL’s gasoline and diesel margin by ₹3,000 crore annualised Ebitda,” Dixit said. “Similarly, BPCL could minimise output of low-margin products like LPG and increase output of high-margin gasoline and diesel. As a private refiner, it could also improve its gross refining margins (GRM) by at least $1/barrel or Rs 2,000 crore annualised Ebitda through lower crude cost.”Bigger BetsOver the years, Apollo has been taking bigger bets in India, bidding for distressed assets such as Monnet Ispat, which it acquired through the bankruptcy process with JSW Group. Apollo has had a rollercoaster 2020 — a $2.3 billion loss this summer followed by $1 billion profit in the next quarter ended June, which also saw nearly $100 billion getting added to its investment war chest following a headline deal with insurer Prudential and the launch of a $12 billion credit fund with Mubadala. But the recent third quarter has been disappointing with an 8% drop in distributable earnings.

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