Shares of Hindustan Petroleum Corporation (HPCL) plunged 4.34% on Thursday closing the session at Rs 367.35 on BSE after the Cabinet gave in-principle nod for the purchase of the government’s 51.1% stake in HPCL by Oil and Natural Gas Corporation (ONGC).
The shares of ONGC surged 1.75 % closing the session at Rs 165.90. The market cap of HPCL reduced by Rs 2,537.16 crore from Rs 58,514.78 crore and ONCG’s market cap increased by Rs 3,657.4 crore from Rs 2,09,245.9 crore, according to Bloomberg data.
ONGC and HPCL were among the top five active stocks in the energy sector. On Thursday, 1.85 crore shares of ONGC were traded while the average six-months volume of ONGC has been 78.66 lakh. The average six months volume of HPCL is 49 lakh, however on Thursday 76.40 lakh shares of traded.
Ambit Capital noted ONGC’s acquisition will erode operational independence of HPCL. HPCL is undergoing a mega capex cycle with significant expansions across refining and petrochemicals, expanding marketing network and investing in LNG terminals. Given the aggressive expansion plans, HPCL may have to reduce its dividend payout, which would be a very negative outcome for minority shareholders.
“We expect the stock to see a negative impact as ONGC HPCL merger gets announced without much premium to HPCL’s market price. We believe long term holders should get concerned as the deal gets closed and HPCL becomes a subsidiary to ONGC which doesn’t have such a good track record on capital allocation,” analysts said.
The approval to sell stake in HPCL to ONGC is one of the moves by the government to create state-run integrated oil major. Finance minister Arun Jaitley during Union budget 2014 on February 1 announced the merger the existing state-owned oil and gas companies to set up a global behemoth.