Castrol India shares surge nearly 9% as bp agrees to sell stake in firm to Stonepeak

Shares of the country's leading lubricants maker Castrol India rose as much as 8.85% to hit an intraday high of ₹202.40 on the National Stock Exchange (NSE) on Wednesday, December 24, amid higher than usual trading volumes. On the BSE, Castrol India shares 8.92% to hit an intraday high of ₹202.50 after British petroleum giant bp said that it has agreed to sell its 65% stake in Castrol India to Stonepeak at an enterprise value of $10 billion.

"This represents an implied EV / LTM EBITDA of around 8.6x reflecting the strength of the business and future growth potential. The transaction represents a significant milestone in bp’s commitment to accelerate its strategy, including simplifying the portfolio, strengthening the balance sheet, and focusing the downstream on its leading integrated businesses," bp said.

The transaction will result in net proceeds to the tune of $6 billion to bp which includes around $0.8 billion for the pre-payment of future dividend income over the short to medium term on bp’s retained 35% stake and other adjustments.

"The implied total equity value of Castrol is $8.0 billion after deducting JV minority interests totalling $1.8 billion, and other debt-like obligations of around $0.3 billion, and subject to customary adjustments. A significant proportion of Castrol JV minority interests relate to the shareholding in the publicly listed Castrol India," bp said.

"Upon completion of the transaction a new joint venture will be incorporated comprising a 65% Stonepeak and 35% bp ownership. bp's retained stake provides exposure to Castrol’s growth plan over the coming years, which builds on a strong track record of nine quarters of consecutive year on year earnings growth. Following a two-year lock-up period, bp has optionality to sell its 35% stake in Castrol," bp added.

“Today’s announcement is a very good outcome for all stakeholders. We concluded a thorough strategic review of Castrol, that generated extensive interest and resulted in the sale of a majority interest to Stonepeak. The transaction allows us to realise value for our shareholders, generating significant proceeds while continuing to benefit from Castrol’s strong growth momentum. And with this, we have now completed or announced over half of our targeted $20bn divestment programme, with proceeds to significantly strengthen bp’s balance sheet," said Carol Howle, interim CEO at bp.

"The sale marks an important milestone in the ongoing delivery of our reset strategy. We are reducing complexity, focusing the downstream on our leading integrated businesses, and accelerating delivery of our plan. And we are doing so with increasing intensity – with a continued focus on growing cash flow and returns, and delivering value for our shareholders,” Howle added.

Castrol India shares were witnessing heavier than usual trading activity as volumes on the NSE spiked by 29.8 times to 3.95 crore shares compared with an average trading volume of 13.28 lakh shares.

On the BSE, as many as 23.56 lakh shares changed hands compared with an average of 91,000 shares traded daily in the past two weeks.

As of 2:21 pm, Castrol India shares gave up most of intraday gains to trade 2.27% higher at ₹190.20, outperforming the NIFTY Smallcap 100 index which was up 0.3%.