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Nod for Oil and Natural Gas Corp- Hindustan Petroleum Corp Ltd merger
In a significant development that could result in the birth of an oil behemoth, the Union Cabinet on Wednesday approved sale of government\'s stake in Hindustan Petroleum Corp Ltd (HPCL) to India\'s largest oil producer ONGC for Rs 30,000 crore, a top government source said.
Govt’s 51.11% stake in HPCL valued at Rupees 30,000 cr
New Delhi: In a significant development that could result in the birth of an oil behemoth, the Union Cabinet on Wednesday approved sale of government's stake in Hindustan Petroleum Corp Ltd (HPCL) to India's largest oil producer ONGC for Rs 30,000 crore, a top government source said.
Oil and Natural Gas Corp (ONGC) will buy government's 51.11 per cent stake in HPCL, but will not have to make an open offer as the government's holding is being transferred to another state-run firm and the ownership isn't changing.
HPCL will become a subsidiary of ONGC and will remain a listed company post the acquisition, the source said adding the boad of the refining and marketing company will continue to remain in place. The Centre, ONGC and HPCL will dictate terms on next level of proceedings.
After the stake buying, HPCL will continue as a separate entity and a subsidiary of ONGC. It also makes operational sense for a merger of HPCL and MRPL, another subsidiary of ONGC, to take place. As per Wednesday’s closing price, a 51.11 per cent stake in HPCL is worth nearly Rs 30,000 crore. Sources said that one has to wait if ONGC needs to pay a premium over the traded price of HPCL shares will be taken by the company.
The government has planned a number of mergers and acquisitions (M&As) among the PSUs this fiscal. In his 2017-18 Union Budget speech, Finance Minister Arun Jaitley had said that the government sees 'opportunities to strengthen' PSUs through consolidation, mergers and acquisitions. He gave the example of the oil and gas sector.
“We propose to create an integrated public sector ‘oil major’ which will be able to match the performance of international and domestic private sector oil and gas companies." The total disinvestment target for FY2017-18 is Rs 72,500 crore. Of this, Rs 46,500 crore is expected to come in from minority stake sales, buybacks, mergers, public listings and through the CPSE ETF route. Rs 15,000 crore is budgeted to come in from strategic sale in PSUs and in SUUTI.
The remaining Rs 11,000 crore is expected to come from the earlier-announced plans to list five state-owned general insurance companies.
Globally, consolidation in oil sector is an acknowledged practice. International oil giants such as ExxonMobil and Royal Dutch Shell too have consolidated exploration, refining and retail operations. HPCL is a refining company while ONGC is an oil explorer.
Consolidation of different operations will give ONGC control over value chain leading to strengthening of balance sheets.
A bigger Indian oil company will be able to better withstand the volatility in the global oil market, observers say.
