Analysts doubt Vedanta’s ability to buy BPCL

Metals-to-oil conglomerate Vedanta’s interest in buying Bharat Petroleum Corp Ltd (BPCL) is a natural progression towards downstream integration that will hedge its margins but there are doubts over its promoters’ ability to raise finances for such acquisition, analysts said.
Analysts doubt Vedanta’s ability to buy BPCL

New Delhi

 While BPCL dividends could easily cover the cost of debt of any acquisition, “the question we have is how would Vedanta Ltd secure funding, given the worries on leverage at Vedanta and the parent?” JP Morgan said. Buying a 75 per cent stake in BPCL (52.98 per cent of government and 22 per cent through open offer) would cost Vedanta Rs 64,200-97,600 crore depending on the price (Rs 395 to 600 per share). 
“Assuming that Vedanta sells down the equity stake (BPCL has) in (city gas firm) Indraprastha Gas Ltd and (LNG importer) Petronet LNG Ltd, the net cost of the acquisition would be Rs 52,200 crore to Rs 85,500 crore.
 “On our conservative FY23 standalone earnings estimates, even at a 75 per cent dividend payout, this would service the debt cost even assuming the dividend income is taxed at 25 per cent,” it said.

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