Disinvestment in oil PSUs expected to attract global majors who are wary of China

India has opportunity to draw investments & push PSUs like BPCL to investors as some countries seek to counter China’s ‘growing threat to global trade’.

Bharat Petroleum Corp. refinery in Mumbai | Representational Image | Dhiraj Singh/Bloomberg

New Delhi: The growing disquiet over China could see oil investors headed to India, said a top executive at a refiner that Prime Minister Narendra Modi’s government has put up for sale.

“The choices of investing in oil sector will be limited when the world becomes normal and India will be the only happening alternative,” N. Vijayagopal, finance director at Bharat Petroleum Corp. said in an interview from Mumbai. “Most of the Western countries will be very afraid of getting into China. So, where else they can go?”

Many nations, including the US, are coming together to counter what they say is China’s growing threat to global trade, security and human rights. That gives an opportunity for India to attract investments and push some of its state-run assets such as Bharat Petroleum, known as BPCL, to global investors when the world emerges from the coronavirus pandemic.

“Global companies are cutting down on capex, preserving cash now, but Exxon Mobil, Shell, BP or Saudi Aramco aren’t going to perish,” Vijayagopal said. “When they come back after demand picks up, they would have cash available with them to invest.”

India, the world’s third-biggest oil consumer with a population of over 1.3 billion, offers an attractive alternative to China for big oil companies looking for a stable market to expand. Some have already indicated interest in BPCL.

Still, almost every big oil company from Exxon Mobil Corp. to Royal Dutch Shell Plc have investments across China’s energy chain, with newer commitments coming in from companies such as Saudi Aramco to tap the world’s biggest energy consumer.

In India, a nation feted for its ever-rising oil appetite, fuel demand took a major hit from a national lockdown, declared in March, to control the virus outbreak. However, a series of relaxations helped it recover much of the lost demand within a short span although a return to growth is still a long way off.

Refineries, including BPCL, that had slashed processing are now ramping up capacities. “My refineries are running at almost 83% of normal capacities and our sales were about 76% of normal sales in May,” he said. “So, there’s no reason for us to be pessimistic about our capability to come back to normal.”

Indian refiners, which came under the twin assaults of oil price volatility and demand destruction due to the pandemic, saw their share prices tumble. The value of BPCL was about $7.4 billion in early February has now fallen to about $5.7 billion.

Vijayagopal, however, doesn’t see that as a problem. Suitors will assess the company by its assets and resilience to jump back from the crisis, he said. The government, meanwhile, has deferred the deadline for submitting initial bids for the company twice to July 31 now.

BPCL is the third-biggest refiner in India and second-largest fuel retailer. It had a market share of 21% in the financial year which ended March 2019.

“When somebody gives a value, they are not going to give a value for six months,” he said. “We have a 100-year history and we will live for another 100 years as an energy company, even if petrol and diesel are not there.” –Bloomberg