Bharat Petroleum Corporation (BPCL) share price fell for the third consecutive day after international rating agency Moody’s warned Modi government of downgrading the state-run company to Ba1 if it went ahead with privatisation by selling its stake to private players.

The BPCL share fell to an intraday low of Rs 482 compared to the previous close of Rs 490.95 on BSE reported, Business Today.

Moody’s in a note said, “Currently, being a state-owned enterprise, BPCL has a BBB- rating which is on par with the sovereign rating. Ba1 rating will be equal to its current baseline credit assessment. BPCL’s Baa2 ratings incorporate our expectation of the high likelihood of extraordinary support from the government, which results in two notches of uplift in the ratings.”

Why Government Wants To Sell BPCL

The government plans to sell to a strategic partner most of its 53.3 per cent stake in BPCL to attract multi-national firms. Privatisation of BPCL will not only shake up the fuel retailing sector but also help the government achieve at least one-third of its disinvestment target of Rs 1.05 lakh crore. 

Officials told media that BPCL has a market capitalisation of about Rs 1.07 lakh crore. If the government sells its stake, including a control-and-fuel-market-entry premium, it could garner upwards of Rs 60,000 crore.

Ahead of the move that proposed to privatise the company entirely, the government had repealed the legislation that had nationalised the state-owned fuel retailer. The government did it without making noise to do away with the need to seek Parliament nod before selling it to foreign and private firms.

The Repealing and Amending Act of 2016 had declared “187 obsolete and redundant laws lying unnecessarily on the Statue-Book” invalid including the Act of 1976 that had nationalised erstwhile Burmah Shell. “The Act has been repealed, and there is no need for a Parliament approval for strategic sale of BPCL,” Money Control quoted a senior official as saying. 

Companies that are vying to enter the world’s fastest-growing fuel retail market, ranging from Saudi Aramco of Saudi Arabia to French energy giant Total SA, are offered an attractive buy by BPCL. It will provide them access to about 25 per cent of shares of India’s fuel market as well as 34 million tonnes in refining capacity.

Previously, BPCL was Burmah Shell, which the government nationalised in 1976 by an Act of Parliament. Burmah Shell was set up in the 1920s and was an alliance between Royal Dutch Shell and Burmah Oil Co and Asiatic Petroleum (India).

The company has 6,004 LPG distributors and 15,078 petrol pumps. CLSA’s sell call, meanwhile, has been maintained on the stock with a target price of Rs 300, which implies a 42 per cent downside from current levels.

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