I Squared Capital Advisors, LLC is dropping out of the race to buy Bharat Petroleum Corporation Limited (NSEI:BPCL) owing to a complex deal structure and lack of financial backers for the transaction, sources said. I Squared Capital through its Indian arm, Think Gas was among the three suitors that had evinced interest in buying the government's near 53% shareholding in BPCL. "The company has made a decision not to participate in the financial bidding," a source with direct knowledge of the development said.

"The firm has not communicated the decision yet to the government or its transaction advisor but has decided not to go ahead," the source added. While emails sent to I Squared Capital and the Department of Investment and Public Asset Management (DIPAM) - which is running the privatisation plan - remained unanswered, a senior government official said the government will not be aware of such a development as only the transaction advisor would be privy to such moves and that there was an iron curtain between the government and the transaction advisor on such issues. Besides I Squared Capital, mining baron Anil Agarwal's Vedanta Limited (NSEI:VEDL) and Apollo Global Management, Inc. (NYSE:APO) are the other bidders.

Both I Squared Capital and Apollo Global talked to global energy giants and sovereign and pension funds to get financial and strategic support for the bid but failed to elicit much interest, another source said. "Infact at one point even Royal Dutch Shell was talking to two PEs but later backed out," the source said. Some reports suggest Adani Group joining the PEs but that wasn't true, a third source said.

I Squared Capital, the first source said, faced the problem of getting backers for a firm that runs old oil refineries and has business spread from oil refining to fuel marketing, gas and even upstream gas exploration and production assets. "Investors typically want to get access to the world's fastest-growing fuel market. BPCL would give the buyer readymade access to 23 % of the fuel market share.

But not many are interested in the high investment required for the gas field the firm holds in Mozambique or its minority shareholding in Petronet LNG Ltd," the source said. The bidders for BPCL have been slow in conducting due diligence as they wait for new partners to join, they said adding the company allowed bidders virtual access to its financial data early April 2021, but it hasn't progressed beyond the exchange of a few queries and some initial discussions with the company's management in the past six months. "Bidders are conducting due diligence, but uncertainty over the bidder consortium and process complexity, including valuation, may lead to potential delays," Fitch Ratings Ltd. said in a commentary last month.

"We believe the risks of further COVID-19 waves and global oil and gas companies' increased focus on energy transition lead to additional uncertainty over the timing and valuation of potentially large acquisitions in the sector," it noted.