IOC to follow suit with rights issue, HPCL may opt for preferential allotment
Heralding a process of equity capital injection by state-run oil marketing companies in their bid to fund their carbon reduction plans, Bharat Petroleum Corporation (BPCL) will soon launch rights issues worth about Rs 17,000 crore in tranches.
The government, the promoter, will invest Rs 9,000 crore in the company, during the process, a senior official told FE, adding that this would not raise the government’s stake in the firm.
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The BPCL board of directors will meet on June 28 to consider the capital infusion for achieving energy transition, net zero and energy security objectives. BPCL’s share price closed at Rs 359.5 on the BSE on Friday, down 3.74% from the previous close.
“BPCL will be getting from the government about Rs 9,000 crore in different tranches as it is going for the rights issue of about Rs 17,000 crore,” the official said. The Centre owns 52.98% in the fuel retailer-cum-refiner.
In the Budget 2023-24 presented on February 1, the government had announced Rs 30,000 crore equity capital investment in the three OMCs — Indian Oil Corporation (IOC), BPCL and HPCL — towards energy transition and net-zero objectives. IOC, the largest state-run OMC, will get the largest share of the pie.
The amount of equity infusion in IOC, also likely through a rights issue, will be finalised soon.
IOC and BPCL had demanded capital support through loans, keeping in mind the market sensitivity to an increase in the government holding in these companies after the equity infusion. However, the government felt that a rights issue would address their concerns as the government holding would not increase.
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The government’s direct/ indirect holding in the three state-run retailers, which provide over 90% of domestic fuel supplies, is around 51% each, the minimum required to be classified as a state-run firm. The Centre owns 51.5% of IOC, while the country’s top state-run explorer ONGC owns 54.9% of HPCL.
In HPCL, the Centre will likely infuse capital through preferential allotment of equity shares, the source added.
The Centre has announced the capital investment in the OMCs’ refinery upgradation and emission reduction projects such as hydrogen plants.
Due to the inability to pass on the full impact of hardening global crude prices to consumers, BPCL’s net profit declined by 79% on year to Rs 1,870 crore in FY23, while IOC’s net profit declined by 66% on year to Rs 8,789 crore. HPCL reported a loss of Rs 8,974 crore in FY23 compared to net profit of Rs 6,383 crore in FY22.
All the three companies had reported losses in the first two quarters of last fiscal, subdued net profits in the third quarter, and sharp increase in profits in the fourth quarter ending March 2023.
The OMCs are likely to report significant profits in the current and the next quarter (Q1 and Q2FY24) as well, considering the moderation in crude oil prices.
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The government’s plan to privatise BPCL came a cropper in FY22, primarily due to a lack of pricing freedom for state-run OMCs amid global uncertainties in the hydrocarbon market.
