New Delhi: Bharat Oman Refineries Ltd (BORL), an equal joint venture of Bharat Petroleum Corp. Ltd (BPCL) and Oman Oil Co. is looking to raise Rs2,500 crore through an initial share sale to partly fund the joint venture’s refinery at Bina in Madhya Pradesh because the state-owned BPCL is strapped for funds on account of having to sell petroleum products at a government-mandated price that is lower than their cost.
Of this amount, around Rs1,500 crore will be raised through a private placement before the public share sale, and, according to an executive at BORL, institutional investors including Life Insurance Corp. of India (LIC), and UBS AG are interested in buying a stake in the firm because they consider it a good bargain.
Refining hub: A photo of Bharat Petroleum refinery in Mumbai. India hopes to increase its refining capacity to 241mtpa by 2012.
Executives at LIC declined comment and UBS did not respond to email queries.
“These companies are in talks with our lead managers — ICICI Securities Ltd, Citigroup Global Markets Inc. and SBI Capital Markets Ltd. There is a huge demand for our pre-IPO (initial public offering) placement as the refinery (at Bina) is 60% complete. We are seeing a lot of interest from banks, financial institutions, insurance companies and investors from West Asia and our lead managers are in talks with them as well,” added the executive who did not wish to be identified.
An executive with one of the lead managers, who asked neither he nor his firm be named, confirmed the development. “UBS and LIC are both part of a list of potential investors prepared by the three advisers,” he added. The company’s IPO is expected to hit the market before September.
BORL is building a 6 million tonnes per annum, or mtpa, petroleum refinery at Bina. Besides the private placement and the public share sale, it is also looking to raise money by selling a stake to a strategic investor which will also commit long-term supplies of crude.
The Bina refinery will cost Rs10,300 crore to build; Rs6,300 crore of this will be debt. The remaining Rs4,000 crore will be equity. BORL hopes to start operations in 2009. The company’s current equity is Rs152 crore.
Currently, BPCL and Oman Oil hold 50% stake each in BORL. After the IPO, the two firms together will hold 51%, where BPCL will have a 48% stake and Oman Oil 3%. Apart from the 1% that will be taken by the Madhya Pradesh government, the remaining will be offloaded through the IPO and through a 23% stake to a strategic investor that BORL hopes to attract from Saudi Arabia (Saudi Aramco), Kuwait (Kuwait Petroleum Corp.) or Brazil (Petrobras).
Rohit Nagaraj, an analyst at Angel Broking Ltd, said: “BPCL is waiting for funds to go ahead with the execution of the refinery project. The immediate need for cash has made them go ahead with the IPO even in choppy market conditions. However, with the refining sector doing pretty well and the project slated to be commissioned by 2009, the company will also start earning returns soon.”
“The refining margins across the sector are very good. We are confident that with more than half of the refinery already completed, there will be no problems with our IPO,” the BORL executive said.
While India consumes 112mtpa of petroleum products, its refining capacity is around 149mtpa. The country is aiming to make itself a regional refining hub. The government and industry hope to increase India’s capacity by 62% to 241mtpa by 2012. Experts said plans to increase capacity should be seen in the context of India’s strategic geographical location: between the petroleum products market in East Asia and crude supplies in West Asia.
BPCL posted a net profit of Rs2,140 crore on a turnover of Rs1.08 trillion in 2006-07, and has a capacity of 22.5mtpa at Kochi in Kerala, Mumbai and Numaligarh in Assam.
Nesil Staney in Mumbai contributed to this story.