ONGC may sell IOC, GAIL stakes to fund HPCL acquisition


New Delhi, Sep 28 (PTI): State-owned Oil and Natural Gas Corp may sell some of its stake in Indian Oil Corp and gas utility GAIL India to part fund its Rs 32,000 crore acquisition of refiner HPCL, Chairman DK Sarraf said.

ONGC holds 13.77 percent stake in India's biggest refiner IOC, which at today's market price is worth about Rs 26,600 crore. It has another 4.87 percent stake in GAIL India Ltd, worth Rs 1,637 crore.

"We have several options to fund the acquisition of government's 51.11 percent stake in HPCL. On a standalone basis we are debt free and so we can borrow from the market. Also, we have certain investments (in other oil companies) which can be sold," he told reporters last night.

The company's shareholders yesterday allowed it to raise up to Rs 25,000 crore debt, he said, adding that the company had about Rs 10,000 crore of cash in hand.

"We haven't decided what will be the source of fund (for the acquisition). It can be one of the options or a combination of them. Funding is certainly no difficulty," he said.

The government's transaction advisor JM Financial and legal consultant Cyril Amarchand Mangaldas are preparing Information Memorandum (IM) on Hindustan Petroleum Corporation Ltd (HPCL).

ONGC has appointed SBI Caps and the Citi Group as its merchant bankers for the deal and Shardul Amarchand Mangaldas as legal advisor, who would study the IM to arrive at a valuation for the takeover of the country's third-largest refining and oil marketing company.

"As a buyer, we would like to have the lowest valuation while the government as a seller would like to get the maximum value. But since HPCL is a listed company with a market float of 49 percent that is widely spread, there need not be a significant difference between what we need to pay and the market price," Sarraf said.

The deal, he said, was likely to conclude by December.

He ruled out making an open offer to minority shareholders of HPCL post acquiring government's 51.11 percent stake. "There is no change of management and we have been advised that there is no requirement of an open offer," he said.

The Cabinet Committee on Economic Affairs (CCEA) had on July 19 granted 'in-principle' approval to the strategic sale of the government's existing 51.11 percent stake in HPCL to ONGC "along with the transfer of management control, which will result in HPCL becoming a subsidiary company of ONGC".

But since the offer meant a transfer of management control from the government to ONGC, there was apprehension it would trigger SEBI's takeover code and compel ONGC to make an open offer to acquire an additional 26 percent stake from minority shareholders, he said.

So, the terms of sale have been amended to state that "HPCL will continue to be a government company in terms of section 2(45) of the Companies Act, 2013 and will continue to be controlled by the Government of India through ONGC under the administrative control of the Ministry of Petroleum and Natural Gas".

Though the government is cashing out on its holding, the amended terms make it clear that it will continue to retain control of HPCL.

Listing out the rationale for the acquisition, Sarraf said integrated oil companies are the norm world over as they help balance upstream oil and gas production risks with downstream refining and marketing.

During high oil prices, upstream gains while downstream lose on margins. In an inverse scenario of low oil prices, downstream gains and upstream loses.

ONGC already has a subsidiary in Mangalore Refinery and Petrochemicals Ltd (MRPL), which operates a 15 million tons a year refinery. HPCL owns 16.96 percent stake in MRPL while ONGC has 71.63 percent.

Sarraf did not rule out the possibility of MRPL merging with HPCL in near future but said the respective boards would take a call.

At today's trading price of Rs 411.65, ONGC would have to pay Rs 32,126 crore for buying the government's 51.11 percent stake. Had it been required to make an open offer, it would have had to shell out additional Rs 17,000 crore to buy another 26 percent from the open market.

HPCL has 24.8 million tonnes per annum of refining capacity. Mangalore Refinery and Petrochemicals Ltd (MRPL), a subsidiary of ONGC, has 15.1 mt of capacity.

  

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Comment on this article

  • Max and Jessie Rasquinha, Mangalore, Houston/Dallas, texas

    Thu, Sep 28 2017

    ONGC is one of the largest Energy related Organization in the whole world. ONGC has managed it's affairs fairly well under so many prevailing circumstances for many decades when India has gone thru so many Energy challenges with ever-growing demand for upstream and downstream projects.

    ONGC trying to sell IOC stakes and also GAIL stakes is the best step forward in order to gain the momentum during this crucial era of our life when prices are going down and demand is going up.

    A country such as India, we have been blessed with some of the finest expertize who can manage the affairs of Energy business as satisfactorily as possible. It is in our best interest to delegate some of the other Businesses such as IOC and GAIL to others so that each Business can operate independently and enjoy the success with more focus on important issues of each entity.

    We wish ONGC as well as IOC and GAIL best of success because all these three companies can operate separately and successfully under separate managements.

    DisAgree Agree Reply Report Abuse


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