The outbreak of Covid-19 and the collapse in global crude oil price may have dealt a twin blow to the government’s plans to privatize Air India (AI) and Bharat Petroleum Corp. Ltd (BPCL).
The spread of the virus to more than 100 countries and leading to the death of more than 4,300 people has hit the travel and hospitality industry the hardest, with countries imposing both inward and outward travel bans. Brent crude was down almost 3% to $36 per barrel on Wednesday after Saudi Arabia and the United Arab Emirates announced plans to boost production capacity.
Present market conditions do not favour the planned sell-off of BPCL and Air India, said Madan Sabnavis, chief economist at Care Ratings. Sabnavis said he expects the sale to be held in abeyance for the time being. “The aviation industry is down and one is not sure how it will fare or when it will recover with the entire travel and tourism industry being affected. Therefore, the Air india sale looks weak. For BPCL, Saudi Arabia has added new dimension to the warfare, which will make oil companies less competitive and hence the sale of an oil company may not be appropriate today. It is expected that a bidder could be from outside, which now makes the valuation tricky given that oil prices have crashed and will be volatile,” he said.
“We have just released the expressions of interest (EoIs) for Air India and BPCL. Though current market conditions do not appear favourable, an investor will look at opportunities in the medium term. As the transactions have to be completed over the next one year, we have enough time to recalibrate bids if initial interest shown by investors fall below expectation,” the official said.
The Covid-19 outbreak will give the Indian government more time to prepare for the sale, said Lewis Burroughs, head of aviation, India, at global consulting services company ICF. “In terms of market appetite, investors could be cautious during the next two quarters or so. However, with the government keen to privatize the airline, the divestment of Air India should happen in the future,” he said. Dipam has extended the deadline for release of response to queries on preliminary information memorandum from 25 February to 16 March. The last date for submission of EoIs is also likely to be extended from the current 17 March, civil aviation ministry officials said.
This article was first published on livemint.com.