While ONGC buying HPCL will help the government meet as much as 40 per cent of its target for raising Rs 72,500 crore in the current fiscal through stake sales, more deals in the oil sector including one where refiner Indian Oil Corp (IOC) buys out explorer Oil India Ltd or Bharat Petroleum Corp Ltd (BPCL) merges with gas utility GAIL may be in the offing.
Oil Minister Dharmendra Pradhan is likely to make a statement on the deal as well as other potential mergers tomorrow afternoon in Parliament.
Prior to the merger, HPCL is likely to take over Mangalore Refinery and Petrochemicals Ltd (MRPL) to bring all the refining assets of ONGC under one unit. ONGC currently owns 71.63 per cent of MRPL while HPCL has 16.96 per cent stake in it.
HPCL buying ONGC stake will give the explorer Rs 16,414 crore at today's closing price. ONGC, which has cash reserves of Rs 13,014 crore, also has an option to sell part or all of its 13.77 per cent stake in IOC which is worth nearly Rs 25,000 crore.
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The deal will be completed within a year, he said.
HPCL will become a subsidiary of ONGC and will remain a listed company post the acquisition, he said adding the board of the refining and marketing company will continue to remain in place.
HPCL has a market cap of Rs 58,485.55 crore, based on today's closing price of Rs 384 a share on the BSE.
At today's rate, ONGC will have to shell out close to Rs 30,000 crore for government's 51.11 per cent but the actual price may be either of one-year, 26 week or 60 day average scrip price, the source said.
Once the government officially notifies the decision, the board of ONGC will consider buying out HPCL and valuations will then be worked out, he said.
The source, cited earlier, said a committee -- headed by Finance Minister Arun Jaitley and comprising Pradhan and Road Transport Minister Nitin Gadkari -- has been constituted to work out the modalities.
Sarraf said there was a strong case for merging MRPL, which ONGC had acquired in March 2003 from AV Birla Group, with HPCL but no modalities have been worked out yet.
A source in ONGC said the company may not appoint valuation advisers as the job would be done by the seller (the government).
Jaitley had in his Budget for 2017-18 fiscal talked about creating an integrated oil behemoth. After that oil companies were asked to give their options.
ONGC had evaluated options of acquiring either HPCL or BPCL -- the two downstream oil refining and fuel marketing companies.
It found the nation's second-biggest fuel retailer BPCL too expensive and conveyed its choice to the parent oil ministry.
ONGC has cash reserves of Rs 13,014 crore and to fund the government stake acquisition in HPCL, it will have to borrow at least Rs 10,000 crore, the source said.
BPCL has a market cap of Rs 1,01,860.56 crore and buying government's 54.93 per cent would alone have entailed an outgo of about 56,000 crore.
HPCL on the other hand has a market cap of Rs 58,485.55 crore and buying government's entire 51.11 per cent stake would entail an outgo of Rs 29,900 crore.
Sources said the government was initially looking at creating an integrated oil company through merger of an oil producer with a refiner but the idea was dropped for the fear of repeating the Air India-Indian Airlines kind of a merger which is not considered successful.
There are only six major companies in the oil sector -- ONGC and Oil India Ltd being the oil producers, IOC, HPCL and BPCL in refinery business and GAIL in midstream gas transportation business.
The rest, such as ONGC Videsh, Chennai Petroleum Corp (CPCL), Numaligarh Refinery Ltd and MRPL, are already subsidiaries of one of these six PSUs.
HPCL will add 23.8 million tonnes of annual oil refining capacity to ONGC's portfolio, making it the third-largest refiner in the country after IOC and Reliance Industries.
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