GOVT TWEAKS HPCL SALE TERMS TO AVOID ‘OPEN OFFER’

The government has tweaked the terms of sale of its 51.11 per cent stake in Hindustan Petroleum Corporation (HPCL) to Oil and the Natural Gas Corporation (ONGC) by including phrases that will help avoid triggering

an open offer, an official said. The Cabinet Committee on Economic Affairs (CCEA) had on July 19 granted “in-principle” approval for strategic sale of the government’s stake in HPCL to ONGC, “along with the transfer of management control, which will result in HPCL becoming a subsidiary company of ONGC”. The Department of Investment and Public Asset Management (Dipam) had on July 21 used the same formulation to invite expression of interest from investment and merchant bankers to manage the transaction.

The government has tweaked the terms of sale of its 51.11 per cent stake in Hindustan Petroleum Corporation (HPCL) to Oil and the Natural Gas Corporation (ONGC) by including phrases that will help avoid triggering an open offer, an official said.

The Cabinet Committee on Economic Affairs (CCEA) had on July 19 granted “in-principle” approval for strategic sale of the government’s stake in HPCL to ONGC “along with the transfer of management control, which will result in HPCL becoming a subsidiary company of ONGC”.

The Department of Investment and Public Asset Management (Dipam) had on July 21 used the same formulation to invite expression of interest from investment and merchant bankers to manage the transaction. But, since the offer meant transfer of management control from government to ONGC, there was apprehension it would trigger Sebi’s takeover code and compel ONGC to make an open offer to acquire an additional 26 per cent stake from the minority shareholders, he said.

So, Dipam on August 7 amended the terms to state that “HPCL will continue to be a Government company in terms of section 2(45) of the Companies Act, 2013, and will continue to be controlled by the Government of India through ONGC under the administrative control of the Ministry of Petroleum and Natural Gas”.

Though the government is cashing out on its holding, the amended terms make it clear that it will continue to retain control of HPCL, the official said, adding since there is no transfer of actual control, there would be no requirement of an open offer.

At Wednesday's trading price of ~431.85, ONGC would have to pay ~33,633 crore for buying government's 51.11 per cent stake. Had it been required to make an open offer, it would have had to shell out another ~17,100 crore to buy another 26 per cent from open market.

Another official said ONGC will have to borrow about ~25,000 crore to fund just the purchase of government stake.

Half of the company's ~15,000 crore of cash has already gone into buying Gujarat State Petroleum Corp's stake in a KG basin gas block, and after accounting for capital expenditure requirement for the current year, ONGC would be left with ~4,000-5,000 crore.

The rest will have to be borrowed, he said.