Among unlisted investments, BPCL holds 61.6 per cent in Numaligarh Refinery (NRL). One factor to watch out before the strategic sale is how BPCL would offload its stake in NRL.
Even as the Union government has approved the strategic disinvestment of BPCL, investors have to contend with the complex maze of cross holdings of state-owned energy companies. This has a bearing on dividend income and the computation of fair value. According to Capitaline data, ‘other income’ as a percentage of profit before tax of the oil marketing companies ranged between 13 per cent and 28 per cent last fiscal. The Street typically discounts 20-30 per cent as holding company discount to the listed investment to compute fair value.
OMC stakes in other energy companies are in the range of 2 per cent to 22 per cent. BPCL holds 12.5 per cent in Petronet LNG, 22.5 per cent in Indraprastha Gas and 2.47 per cent in Oil India. The cumulative value of BPCL’s listed investments is ?12,095 crore as on Thursday. In case BPCL chooses to offload them, the result would be an excess supply of these stocks, depressing prices.
Among unlisted investments, BPCL holds 61.6 per cent in Numaligarh Refinery (NRL). One factor to watch out before the strategic sale is how BPCL would offload its stake in NRL. It had a book value of ?5551 crore in FY19. State-owned refiners are currently trading at 0.9-2.87 times book value.
Analysts believe that offloading listed investments could make sense for strategic investors to reduce the risk of any future government intervention. Since a listed investment is as good as cash equivalent, it can be sold before disinvestment and the proceeds given as one-time special dividend.
