bpcl gmi ratings _becg

8/8/2019 Bpcl Gmi Ratings _becg

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GMIRatingsforBPCLSeptember7,2010

BECGProject|IBS,Hyderabad

GMI Ratingsfor BPCL

SubmittedtoDr.SwatiJain

Submittedby

ArpitaSharma (09bshyd0166)RuhiVadhera (09bshyd0700)RishabhAgarwal(09bshyd0667)

IBS,

Hyderabad


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Bharat Petroleum Corporation Limited

Bharat Petroleum Corporation Limited (BPCL) is engaged in the petroleum industry in India.

During the fiscal year ended March 31, 2009 (fiscal 2009), the aggregate refinery throughput at

BPCLs Refineries at Mumbai and Kochi, along with that of BPCLs subsidiary company,

Numaligarh Refinery Limited (NRL), was 22.20 million metric tons. The company is engaged in

downstream petroleum sector, which consists of refining and marketing activities. Bharat

Petroleum is considered to be a pioneer in Indian petroleum industry with various path-breaking

initiatives such as Pure for Sure campaign, Petro card, Fleet card etc. Bharat Petroleum produces a

diverse range of products, from petrochemicals and solvents to aircraft fuel and speciality

lubricants and markets them through its wide network of Petrol Stations, Kerosene Dealers, LPG

Distributors, Lube Shoppes, besides supplying fuel directly to hundreds of industries, and several

international and domestic airlines. BPCL holds 61.65% interest in NRL as on March 31, 2009.BPRL, a 100% subsidiary of the Corporation, holds 50% equity in V B (brazil) Petroleo Private

Ltda , a joint venture company. BPCL has participating interests in nine exploration blocks. Its

subsidiaries include Bharat PetroResources JPDA Limited, BPRL International BV, BPRL

Ventures BV and BPRL Ventures Mozambque BV.

Primary Listing NSE

Market Cap 27849.59Crs

Market Sector Petroleum

Rating

Overall Rating 3

Board Accountability 2.5

Financial Disclosure and Internal Controls 3

Shareholder Rights 1.5

Remuneration 1

Market for Control 2.5

Corporate Behavior 4.5


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GMI Ratings:

Here each factor has been given an equal weight age of 10. Various questions have been included within all the factors where each favorable answer

attracts one point.

Since each factor has different number of questions, therefore every factor then has beenscaled down to 10.

Average of all the factors is then taken in order to calculate the overall rating of the company.

HowtoInterprettheRating?The company is rated on a scale of 1.0 (lowest) to 10.0 (highest).

A rating of 9.0 or higher is considered to be well above-average.

7.5 to 8.5 is considered to be above-average

6.0 to 7.0 is considered average

3.5 to 5.5 is considered to be below-average

3.0 Or less is considered well below-average

Overall Rating 3

Board Accountability 2.5

Financial Disclosure and Internal Controls 3

Shareholder Rights 1.5

Remuneration 1

Market for Control 2.5

Corporate Behavior 4.5


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Board Accountability (Rating: 2.5)

Combined Chair/MD Yes The company discloses an over-

boarding policy limiting the number

of directorships held by executive

directors

Yes

Has a designated "lead" or senior

non-executive director

No At least one director serves on the

boards of four or more public

companies

Yes

Non-executive Chair No Executive Chairman, Chief

Executive Officer or Managing

Director (as applicable) serves onthe boards of three or more public

companies

Yes

Directors subject to rotation and

election by all shareholders

Yes Related-party transactions involving

officers or directors in the past three

years

No

Uses, or has adopted, some

form of majority voting in the

election of directors

Yes Discloses a code of ethics for

senior executives or the employee

code of ethics also covers senior

executives

Yes

Discloses corporate governance

policies or guidelines

Yes The company discloses an over-

boarding policy limiting the number of

directorships held by non-executive

directors

Yes

All directors attended at least

75% of the board meetings and

committee meetings in the last

fiscal year

Yes All non-executive directors own shares

after excluding options held

No

Although BPCL has a majority shareholder, it is in the form of the Central Government and its

board also consists primarily of independent directors. Therefore majority voting rights with one

shareholder is not a corporate governance concern for BPCL as it directors can work independently

and give sufficient independent insight to the working of BPCL.

BPCL discloses its corporate governance guidelines, as it is mandatory under Clause 49 of the


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Listing Agreements and Department of Public Enterprises. BPCL annexes a Report on Corporate

Governance along with the Auditors Certificate for compliance with corporate governance

guidelines making it easy to ascertain what governance controls have been put in place to protect

the interests of shareholders.

The directors of BPCL change by way of rotation at annual general meetings with the approval of

the shareholders. Theres a proper performance evaluation mechanism in place for the directors at

BPCL and a part of their pay is also linked to their performance. All independent directors of BPCL

have a maximum tenure of not more than 3 years

Every director attended at least 75% of the board and committee meetings in the last fiscal year.

There were 8 board meeting held in the previous fiscal year and the lowest attendance for any

director was 75%. Only Mr. P.H. Kurian and Mr. S.A. Narayan were able to attend only 75% of the

meetings. Everyone else attended at least 7 out of the 8 meetings held

Although there are 2 directors who serve in the board of 4 or more Public Limited Companies and

the Chairman and M.D. of the company, Mr. S Radhakrishnan is in the board of 4 Public Limited

Companies, all these are BPCLs subsidiaries.

None of the non-executive directors of BPCL have any pecuniary relationship/transactions with the

company. The details of any related party transactions are also given in the Notes forming part of

Accounts

BPCL has not introduced any Stock Options Scheme and its Non Executive directors do not hold

any shares in the company

As required by SEBI the company has a Code of Conduct, Procedure and Disclosure for prevention

of Insider trading in its securities and a Code of Corporate Disclosure Practices in place and a

Company Secretary has also been appointed as the Compliance Officer for implementation of the

said codes


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Financial Disclosure and Internal Control

Rating:3Number of independent directors as per

requirement of CPSE

Yes Chairman of the audit committee is

non-executive and has substantial

industry knowledge

Yes

At least one non-executive member of

the audit committee has expertise in

accounting or financial management

Yes Has taken two or more unusual and

non-recurring charges (representing

five percent or more of revenue, five

percent or more of shareholders equity

(net assets) or more than $500M in

total) within the last three years

No

Non-executive members of the audit

committee with expertise in accounting

or financial management form a

majority of the committee

No At least one non-executive member of

the audit committee has substantial

industry knowledge

Yes

Chair of the audit committee is non-

executive and has expertise in

accounting or financial management

Yes Audit committee has sole authority to

approve any non-audit services from

the company's outside auditor

Yes

Someone other than senior management(such as the audit committee,

shareholders or the board) has sole

authority to hire and fire the companys

outside auditor

Yes Makes comprehensive disclosures onits enterprise risk management policies

(ERM) in its annual report or in other

publicly available sources

No

Non-executive members of the audit

committee with substantial industry

knowledge form a majority of the

committee

Yes The board has adopted a separate

committee or subcommittee

responsible for oversight of risk

management

No


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Audit Committee

BPCL took the initiative to introduce Corporate Governance in the organization during the year

1996 itself, by constituting the Audit Compliance Committee. The said Committee was

reconstituted and renamed as the Audit Committee in the year 2000 and the role, powers and

functions of the Audit Committee were specified and approved by the Board. Presently, the

Audit Committee comprises four Part-time (Independent) Directors as per the requirement of

Clause 3.1.4 relating to the number of Independent Directors on the Board of Directors of the

Company. In case of CPSEs listed in Stock Exchanges, the number of independent directors shall

be at least 50% of Board Members.

Prof. A.H. Kalro is the Chairman of the Committee and Prof. A.H.Kalro and Prof. N.

Venkiteswaran of the audit committee possess the requisite knowledge of Finance & Accountingfor effective functioning of the Audit Committee and have enough industry experience. The

terms of reference of the Audit Committee cover all matters specified in Clause 49 of the Listing

Agreement. Under this agreement one of the clause mentions that it would be necessary for chief

executives and chief financial officers to establish and maintain internal controls and implement

remediation and risk mitigation towards deficiencies in internal controls, among others. The

auditors have the responsibility of recommending to the Board, the appointment, re-appointment

and, if required, the replacement or removal of the Statutory Auditor (M/s. B.K.Khare & Co)

and the fixation of audit fee


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Shareholder Rights

All common or ordinary equity shares

have one-share, one-vote, with no

restrictions

Yes Shareholders can appoint a

proxy in his absence

Yes

Has Investors Grievance mechanism in

the company

Yes Confidential voting with no

or reasonable exceptions

Not

disclosed

Mechanism for prohibiting insider trading Yes Related party disclosure Yes

Has the Company adopted requirements

with regard to sending of quarterly/half

yearly financial results to the

shareholders of the Company

Yes Voting rights different

depending on the duration of

ownership

Not

disclosed

In order to give wider publicity and to reach the Shareholders and other investing public across

the nation, the half yearly and quarterly results of BPCL are published in various editions of

leading newspapers having wide circulation such as The Economic Times, The Times of India,

The Hindu, The Financial Express etc. Reports on Limited Review were obtained from the

Auditors of the Company and filed with the Stock Exchanges. The Financial Statements were

also sent to all Shareholders at their registered addresses. In order to protect the interest of allshareholders in Pursuant to the requirements of SEBI (Prohibition of Insider Trading)

Regulations, 1992 as amended, the Company has adopted the Code of Conduct, Procedure and

Disclosures for Prevention of Insider Trading in the Securities of Bharat Petroleum Corporation

Limited and Code of Corporate Disclosure Practices. The Company Secretary has been

appointed as the Compliance Officer for implementation of the said Codes. The company has

made Related Party disclosures as per Accounting Standard 18 in the financial statements

attached to the report in schedule X. A Member entitled to attend and vote at the Meeting is

entitled to appoint a proxy or proxies to attend and vote instead of himself and such proxy need

not be a Member. Proxies, in order to be effective, should be duly completed & affixed with the

revenue stamp and be deposited at the Registered Office of the Company not less than forty eight

hours before commencement of the Meeting. There is Investors Grievance Committee in the

company, comprising of Prof. A.H.Kalro, Director, and Shri S K Joshi, Director (Finance), who

monitors the Shareholders/Investors complaints and redress their grievances. The Company

Secretary acts as the Compliance Officer for matters related to investor relations.


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Market for Control (Rating 2.5)

Single shareholder controls or

shareholder group acting

together control over 50% of the

company's voting power

Yes Has adopted a shareholder rights plan

("poison pill")

No

Involved in a series of cross-

shareholdings with other (related

or unrelated) companies

No Shareholder rights plan ("poison

pill") has been ratified by a

shareholder vote

No

Has a staggered ("classified") board

Yes

Shareholder rights plan includes a

TIDE provision or a

three-year sunset provision

No

Directors can be removed without

cause

No Shareholder rights plan includes a

provision allowing it to be

redeemed by a vote of the majority of

shareholders other than

the potential acquirer ("chewable"pill)

No

Fair price provision is in place or

the company is subject to fair

price protection under applicable

law

No The company has a unilateral right to

amend the

by-laws/articles of

association/constitution without

shareholder

approval

No

The government of India holds around 55% shares in the company and so the major votingpower is in the hands of government only.

The company has no right plan till date. It has not issued any plan and nothing is due. The companys board is a staggered one. The company has both government nominated and

independent director with individual charge. Such as finance, human resources, refineries and

marketing department. The company has many directors from ministries also.


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The directors cannot be removed without the consent of the government. Normally thedirector is removed or changed if his term expires. The government has all the say in these

matters.

The company has no fair price protection law. The company cannot amend the laws / articles of the companies without governments

approval. The government with majority control has all the say.


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Remuneration (Rating 1)

Remuneration committee wholly

composed of independent

members

No Shareholders have the ability to affect

remuneration policy through

shareholder approval of the

remuneration committee

report,

No

Discloses specific numeric

performance targets for the

upcoming fiscal year for at least

one of the performance

objectives (not just a target

award percentage of salary)

No The remuneration committee has

discretion to alter the criteria and/or

incentive targets for management after

being established or has power to grant

incentives or bonuses on a

discretionary basis.

No

Discloses a policy requiring

company executives to retain

some or all of the shares

acquired through stock options

for a period of time after the

options have been exercised

No Claw back policy for any bonuses,

options and/or other compensation

based on accounts that end up being

restated at a later date

No

The retention period for some or

all shares issued upon exercise of

stock options is 3 years or longer

No Discloses stock ownership guidelines

for the CEO

No

Some or all shares issued upon

exercise of stock options arerequired to be held until

retirement


for the rest of seniorManagement

No

Discloses a policy requiring

company executives to retain

some or all of restricted shares


for non-executive

Directors

No


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for some time after they have

completed their performance

conditions

The retention period for some orall restricted shares that have

met all performance conditions is

3 years or longer

No Percent potential dilution as a result ofstock options Outstanding

No

Some or all restricted shares that

have met all performance

conditions are required to be held

until retirement

No Percent potential dilution as a result of

stock options outstanding, plus stock

options approved for grant but not yet

granted

No

The government appointed panel fixes the remuneration for the directors and senior levelmanagement. The directors have no say in the management though they can be in the panel

or can be consulted.

The company has no stock option plan for employees as per the rules till date. Majority of the shares are with the government so the shares can be diluted only with their

permission.

All the policies requiring remuneration is subject to government rules.


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Corporate Behavior (Rating 4.5)

Involvement in community initiatives Yes Has mechanism to address the

employee related issues

Yes

Company (or a current or former senior

executive) has pending criminal litigation

against it, has been found guilty within

the last 3 years, or has pled the equivalent

of no contest in such litigation in the past

three years, or has been under criminal

investigation within the last 3 years

No Company (or a current or former senior

executive) has been subject to a formal

regulatory investigation for a material

issue other than for accounting

irregularities within the last year

No

Discloses its workplace safety record in

the annual report or in another form

accessible to shareholders

No Has been charged with three or more

serious workplace safety violations

within the last two years

No

Discloses its environmental policies Yes Discloses its related party transaction Yes

Discloses its environmental performance Yes Discloses its policy regarding corporate

level political donations

No

BPCL environment policies are excellent. On the environment front, a notable initiative by

BPCL has been the commissioning of a Single Point Mooring (SPM) facility, located 19.4 km

offshore, at Kochi refinery to facilitate crude transfer. This facility has allowed them to bring in

very large crude carriers, thereby achieving freight economics and the likelihood of oil spillage is

also minimized. At Numaligarh they have invested in the development of a pipeline from the

refinery to Siliguri which will reduce the leakages associated with transportation through rail and

road. The Mahul refinery continues to maintain the same stringent emission limits in spite of

employing heavier crude while increasing the refining capacity to 106.2%. In all these efforts,

the concomitant environmental impacts have been reduced.

BPCL has initiated various CSR activities in employee related issues. Some of them are

Counselling-BPCL has initiated counselling to overcome the different problems ofemployees at work.


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Addiction- With the rising awareness about employee welfare and raising the quality ofwork, various companies today make efforts to reduce addictions. BPCL has been one of

the first companies to engage in continuous endeavours to help their addicted employees

to overcome their problems

Women EmpowermentAlso BPCL discloses the Related Party transactions as per Accounting Standard 18

Some of the community initiative of BPCL includes providing equal opportunity to people

with disabilities, providing disaster relief and rural development.

bpcl gmi ratings _becg

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