Oil and Natural Gas Corporation Ltd. will acquire the government’s 51.1 percent stake in refiner and marketer Hindustan Petroleum Corporation Ltd. for Rs 36,915 crore, helping the government exceed its record divestment target for the current fiscal year.
India’s largest oil explorer will buy shares at Rs 473.97 apiece, according to its exchange filing. That implies a premium of 13.7 percent over HPCL’s Friday’s closing price. The valuation for the deal was finalised by ONGC’s transaction advisers which included audit firm EY. The ‘alternative mechanism’ under the chairmanship of the finance minister yesterday approved the bid price and the terms and conditions of the sale. The deal will be completed by the end of this month.
We had engaged an independent agency for evaluation. They did the evaluation and we had kept an advisor. The price recommended is well below the recommended price by independent agencies.Shashi Shanker, Chairman And Managing Director, ONGC
ONGC’s board has approved raising up to Rs 35,000 crore from the markets, Shashi Shanker, chairman and managing director of ONGC said in a media conference on Sunday. “We have cash balances with us and some liquid assets to the tune of around Rs 29,000-30,000 crore,” he added. Shanker didn’t give specifics of how the acquisition will be funded but said that the most economical plan would be used.
The deal would not hurt ONGC’s appetite for acquisition of overseas assets, neither will it impact the growth plans of HPCL, Shanker said. He added that the individual identities of both companies will continue to exist.
HPCL will continue to run the way it has been running. There will be no major changes.Shashi Shanker, Chairman And Managing Director, ONGC
The share purchase is exempt from the requirement of open offer, as it is covered by a statutory exemption in the takeover code, ONGC said in the statement. Under the market regulator’s takeover code, an entity acquiring more than 25 percent in a listed company has to make an offer to buy another 26 percent from public shareholders. The deal does not require any other regulatory approval as it has been exempted from the Competition Act, the statement said.
The government’s share sale is part of its effort to create a state-run oil behemoth to better compete with global rivals. The deal will also help it exceed its Rs 72,500-crore selloff target at a time when India has already breached its fiscal deficit target in the first eight months of the year to March. The government’s total divestment proceeds as on Jan 20. stood at Rs 54,338 crore. The ONGC-HPCL transaction will take it to more than Rs 91,000 crore.
“ONGC expects that as an integrated oil conglomerate, its performance will be less affected by the volatility of crude prices due to diversification of its cash flows to midstream and downstream presence through HPCL, lower earnings volatility, diversified cash flows and lower business risk resulting in better valuation and higher shareholder value,” the company said in a statement. The ONGC-HPCL combine will become India’s third-largest oil refiner behind Indian Oil Corp. and Reliance Industries Ltd.
Going forward, there is also a possibility of a merger between HPCL and ONGC’s subsidiary Mangalore Refinery And Petrochemicals Ltd. “It is a logical option,” Shanker added when asked about the future roadmap.
ONGC’s board had given the nod in August to acquire the government’s stake in HPCL. The cash-rich explorer will tap the debt market for the first time to raise Rs 25,000 crore to part-fund the purchase, Bloomberg had reported.
This story has been updated to add the management commentary from ONGC’s press conference held on Sunday.
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