ONGC to buy HPCL stake for ~370 billion

Deal to help government surpass disinvestment target this fiscal year

State-run Oil and Natural Gas Corporation (ONGC) will acquire the 51.1 per cent government stake in Hindustan Petroleum Corporation (HPCL) at a cost of ~369.15 billion. The deal is expected to be completed by the end of this month.

ONGC will pay the government ~473.97 per share, at a premium of over 10 per cent of the 60-days’ weighted average price of HPCL's scrip. The deal will help the government surpass the disinvestment target of ~725 billion for 2017-18, for the first time since 2009-10. As of January 11, the total disinvestment proceeds for the current fiscal year stood at ~543.3 billion and this will be for the first time since 2009 that a government will be surpassing its disinvestment target. Since it is a related-party transaction, the market regulator Securities and Exchange Board of India (Sebi) has already granted exemption for an open offer in November last year.

The deal will also have a positive effect on the government’s disinvestment target. Against a budgeted disinvestment target of ~725 billion, the Centre could garner anything between ~900 billion and ~1 trillion now, which could go some way to make up for the shortfall in other revenue items such as the goods and services tax.

ONGC said in a statement on Saturday that its board had considered the proposal on Friday and a share purchase agreement with the President for acquiring the 778 million equity shares of HPCL (51.11 per cent) was signed.

“Requisite approval from the shareholders of ONGC for the related-party transaction will be sought by ONGC after the execution of the share-purchase agreement. The acquisition has been made on an arm’s-length basis. The transaction is exempt from the requirement to make an open offer,” the statement said.

A top ONGC source said, “We haven’t yet finalised we will be financing the deal. We have a good cash balance. Approvals from shareholders are in place to borrow up to ~250 billion. In addition to this, the option of selling stakes in GAIL (India) and Indian Oil are also available. We may go for a mix of these options.” ONGC currently holds 13.77 per cent stake in IOC and 4.87 per cent in GAIL.

The Cabinet Committee on Economic Affairs had approved in principle the deal on July 19 and the alternate mechanism set up for the finalising the price, terms and conditions of the transaction accorded its final approval on January 20 this year.

The company said no other regulatory approval was required for the transaction.

“The acquisition has been undertaken in furtherance of the government’s objective to combine the various central public sector enterprises to give them capacity to bear higher risks, avail economies of scale, take higher investment decisions and create more value for the stakeholders and create an ‘oil major’ which will be able to match the performance of international and domestic private sector oil and gas companies,” it said.

The Cabinet Committee on Economic Affairs had approved in principle the deal on July 19