ONGC-HPCL Deal Is 12th Such Divestment That Really Isn’t 

The Oil and Natural Gas Corporation Ltd.’s acquisition of 51 percent stake in public sector refiner Hindustan Petroleum Corporation Ltd. to help the government meet its divestment target isn’t the first-of-its-kind deal.

In 16 years through March 2014, India has sold a stake in public sector companies to other state-run peers 11 times to raise Rs 14,700 crore, according to data on BSEPSU. The last time that happened was in 2013-14 when the previous Congress-led United Progressive Alliance was in power. ONGC and Oil India Ltd. had then acquired 10 percent of Indian Oil Corporation Ltd. for Rs 5,340 crore—about a fifth of the earnings through selloff that year.

Former Finance Minister P Chidambaram had tweeted that the ONGC-HPCL deal nullified the government’s decision to lower its excess borrowing in 2017-18 as India’s largest refiner would borrow Rs 30,000 crore to part-fund the buyout. He didn’t question the transaction as such.

India has used this route to meet its divestment target, where the money is going from one pocket to another, Pranav Haldea, managing director of Prime Database, which provides information of capital markets, told BloombergQuint. “That doesn’t essentially mean divestment. This is just a way to shore up revenue.”

On Jan. 20, ONGC said it will acquire the government’s 51 percent stake in HPCL for Rs 36,915 crore as India took the first step to create a state-run oil behemoth to compete with global rivals. The deal contributed more than half of the divestment target. Against the budgeted Rs 72,500 crore, it will earn Rs 92,475 crore once the deal is completed by the end of this month.

The government has been using this route to raise funds since 1998. ONGC bought its 12.66 percent stake in IOC, while IOC bought 15.7 percent in ONGC between 1998 and 2000, according to the data. In 2001-02, the government sold its 74 percent stake in IBP Co Ltd. to IOC for Rs 1,154 crore. That year, the actual proceeds from selloff were Rs 3,646 crore.

Haldea said real divestment is when the government sells a stake in the primary or secondary markets. “We have seen several initial public offerings and offer for sales state-owned companies. That should be preferred route of divestment.”