ONGC to take over HPCL

Cabinet in-principle nod to deal; HPCL to remain separate entity

The Union Cabinet on Wednesday approved the sale of its 51 per cent equity in Hindustan Petroleum Corporation (HPCL), the country’s second largest fuel retailer, to Oil and Natural Gas Corporation (ONGC). The deal will increase the government’s disinvestment proceeds by about Rs 30,000 crore.

Senior government officials told Business Standard ONGC, HPCL and the government would now decide how best to proceed with the deal. Once the process of ONGC buying the Centre’s stake in HPCL is decided upon, the Cabinet will give a final approval for the sale.

“HPCL will remain a separate entity, as a subsidiary of ONGC. It also makes operational sense for a merger of HPCL and Mangalore Refinery and Petrochemicals (MRPL), another subsidiary of ONGC,” an official said.

ONGC Chairman and Managing Director D K Sarraf said, “The boards of MRPL and HPCL will have to take a call on this. ONGC as a promoter will go by their decision.” He did not reveal how the deal will be funded.

ONGC has cash reserves of Rs 13,014 crore. Acquisition of 51 per cent equity in HPCL will cost it Rs 29,827 crore at Wednesday’s market capitalisation. ONGC will either have to sell its holding in Indian Oil Corporation or raise a loan to pay the government.

The takeover might not trigger an open offer. Sarraf said, “We understand ONGC will not have to make an open offer.” Government officials, however, did not comment on whether an exemption from the open offer has been granted.

“Any decision on whether ONGC needs to pay a premium will be decided by the companies,” said a senior government official. With crude oil prices averaging $49.87 (Indian basket) a barrel from a high of $112 in 2011-12, oil and gas producers have been facing heat.

Integration with downstream company such as HPCL helps players like ONGC to de-risk their business to a large extent.

The government has planned a number of mergers and acquisitions in the PSU space this fiscal year.

In his 2017-18 Union Budget speech, Finance Minister Arun Jaitley had said 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 FY18 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. About 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.