CABINET GIVES APPROVAL TO HPCL MERGER WITH ONGC
Cabinet okays ONGC’s 51% stake buy in HPCL
The Union Cabinet has given its in-principle approval to the merger of oil marketer Hindustan Petroleum Corp Ltd (HPCL) with state-run explorer Oil and Natural Gas Corp. (ONGC), official sources said. The HPCL board will be listed as a subsidiary of ONGC. ››
NEW DELHI: The government on Wednesday kicked off its ambitious plan to merge state-owned oil companies.
The Union cabinet approved Oil and Natural Gas Corp’s (ONGC’s) proposal to acquire a majority stake in public sector refiner Hindustan Petroleum Corp Ltd, creating an integrated energy giant.
A merger of the existing 11 state-owned oil companies was proposed by finance minister Arun Jaitley in the budget for 2017-18. The idea was to create better efficiencies and also an oil company that would be better placed to compete globally to acquire hydrocarbon resources.
A person with knowledge of the development confirmed that the Cabinet had approved the proposed transaction.
In a separate decision, the Cabinet also approved creation of a new exchange-traded fund for monetising its stake in stateowned companies, banks and insurance firms without losing management control. While the government will retain only 51% in companies disinvested, it will retain 52% in financial institutions.
Approved “disinvestment in respect to public sector banks, other listed public sector financial institutions and public sector insurance companies (when listed) through ETF or other methods, subject to government retaining 52%,” an official statement said.
Divestment of the 51.11% stake in HPCL to ONGC may fetch the exchequer about ₹20,000 crore based on HPCL’s closing share price on Wednes- day.
ONGC shares closed 0.8% higher at ₹163.05 on the BSE and HPCL gained 4.14% to ₹384 on a day the benchmark Sensex gained 0.77% to 31,955.35 points.
While the deal will enable the government to meet part of its ₹72,500 crore disinvestment target for the year, officials clarified that raising revenue was not the chief goal of the transaction.
“Creating an integrated energy company of global scale is the stated objective of the transaction. Receipt of the sale proceeds in only incidental,” said an official who spoke on condition of anonymity.
Now the board of directors of ON G Ch ave to approve the transaction and seek approval from all shareholders before seeking a high court endorsement of the transaction. The government expects to complete the whole process by the end of this financial year.
ONGC, which has announced heavy investments in its deepwater block in the Krishna-Godavari basin, may finance a part of the transaction through borrowing. The company has cash reserves of about ₹13,000 crore.
Emails sent to ONGC and HPCL on Wednesday evening remained unanswered.
Sector experts welcomed the proposed transaction.
Stakeholders are looking forward to the integrated oil company encompassing ONGC, HPCL, Mangalore Refineries and Petrochemicals Ltd.--a subsidiary of ONGC--and ONGC Videsh Ltd as an opportunity for value creation, said Deepak Mahurkar, leader of the oil and gas practice at PwC India.
“For years to come, the conglomerate will try to be better than domestic and global rivals in areas like crude oil, gas, products, petrochemicals, infrastructure and trading,” said Mahurkar.
The cabinet also approved a revision of guidelines for the Indian Community Welfare Fund (ICWF) aimed at assisting Indian nationals abroad during any emergency.
In another decision the Cabinet also approved signing of a memorandum of cooperation on tax issues between India and its fellow members in the BRICS grouping. BRICS stands for Brazil, Russia, India, China and South Africa. The agreement will promote cooperation between BRICS revenue administrations for capacity building and knowledge sharing, an official statement said.