Naik sets out case for 'Public Issue' sale of BPCL

Vol 6, PW 17 (23 Oct 02) Midstream & Downstream

SOON ENOUGH INDIAN authorities will start selling shares in Bharat Petroleum to the Indian public ahead of privatisation.

It's something oil minister Ram Naik has been calling for all along and now we have confirmation that he's made a strong case to the powerful Cabinet Committee on Disinvestment. In early October Naik prepared a detailed note, arguing that a 'Public Issue' of Bharat shares should precede any disinvestment to a strategic investor.

Currently, the government share of Bharat is 66.2% and in Hindustan Petroleum 51%. Naik argues it would be "appropriate" if the government's stake in Bharat comes down to the same level as Hindustan prior to privatisation.

To do this Naik argues for a 'Public Issue' of shares in Bharat. Naik stresses that the money raised from retail investors will help Bharat pay off high interest loans raised in the past.

"This will bring down the debt-equity ratio, reduce the interest burden and improve the future financial results of BPCL." Intriguingly, Naik also contends that a 'Public Issue' will reveal the future 'Strategic Investor' as any interested company would no doubt like to participate in the 'Public Issue'! Naik's other arguments for a partial sale to the public is that Bharat will be able to charge a premium on the face value of its shares once it's made clear that disinvestment to a 'Strategic Investor' will follow soon after. Finally, Naik argues that once the government holding in Bharat is brought down after a Public Issue, any future 'Strategic Partner' will have to buy fewer stakes from the government and public to win management control of the company.