Sebi may exempt ONGC from open offer in HPCL
Oil and Natural Gas Corporation’s (ONGC’s) proposed acquisition of a 51 per cent stake in Hindustan Petroleum Corporation (HPCL) is likely to get a relaxation under the Securities and Exchange Board of India’s (Sebi’s) takeover norm. According to the norm, any entity buying more than a 25 per cent stake in a listed entity has to make an open offer to acquire an additional 26 per cent from minority shareholders.
The Oil and Natural Gas Corporation’s (ONGC’s) proposed acquisition of 51 per cent stake in Hindustan Petroleum Corporation (HPCL) is likely to get a relaxation under the Securities and Exchange Board of India’s (Sebi’s) takeover norm.
According to the norm, any entity buying more than 25 per cent stake in a listed entity has to make an open offer to acquire additional 26 per cent from minority shareholders. Typically, ONGC’s HPCL buy should trigger the open offer. But, the government, which controls both entities, is likely seek an exemption, arguing that the deal is a mere restructuring of shareholding and doesn’t result in change of control, sources said.
ONGC is expected to soon make a formal application in this regard, said a source. ONGC BSE price in ~ Chairman & Managing Director Dinesh Sarraf on Tuesday said it would not be required to make an open offer to buy HPCL’s shares from the market. “We haven’t been approached yet for an open-offer exemption. We will study the grounds on which the application is made and then decide,” said a Sebi official, adding the proposed transaction has grounds BSE price in ~ to seek an exemption.
The government on Tuesday had approved a plan wherein ONGC will buy its 51.1 per cent stake in HPCL. The final terms of the deal are yet to be finalised. At current market rates, the government’s stake is valued at ~28,500 crore.
ONGC has surplus cash of just ~13,013 crore and investments worth over ~60,000 Some scenarios where an acquisition can be exempted from open offer according to the takeover code: Inter-se transfer of shares that don’t change the ultimate control of firm If acquisition is part of strategic debt restructuring by banks and financial institutions Acquisition on account of inheritance or succession crore. Sources said ONGC will use its surplus cash and liquidate some of its investments for the HPCL buy. The exemption is critical for ONGC to keep the acquisition cost in check.
Legal experts said ONGC will formally have to apply to the Sebi for an exemption under the Sebi (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
“If other ingredients are met, Regulation 10(1) (a) (iii) would afford an exemption. Sebi may also grant an exemption under Regulation 11(1) of the Takeover Code on grounds that there is no real change in control since both companies are government-owned and this is merely a restructuring of holding,” said Somasekhar Sundaresan, independent counsel.
“This transaction appears to be a fit case to argue for open-offer exemption. Sebi is generally empowered under the Takeover Code to grant exemption on a case-to-case basis from the open offer obligation in the interests of investors and the securities market,” said Vaibhav Kakkar, partner, Luthra & Luthra.
Legal experts say ONGC’s acquisition price will have to be according to Sebi guidelines and it might also need to obtain minority shareholders’ nod for the HPCL stake buy.