ONGC’s proposed Rs 29,000-crore acquisition of the government’s entire 51% equity stake in HPCL will likely be discussed at the Union Cabinet meeting later today, newspapers reported citing unidentified sources. The Department of Disinvestment is learned to have already issued a Cabinet note on the proposed amalgamation of the state-run refiner Hindustan Petroleum Corp Ltd with the giant oil explorer Oil and Natural Gas Corp, in the government’s quest to create a huge energy PSU of the global scale.
As is widely known, the government is planning to combine HPCL with ONGC by December this year by selling its 51.1% stake in the former to the latter. The equity stake is valued at Rs 29,000 crore at the current market prices. It must be noted that a final deal may still not be immediately in sight, as the handover of HPCL to ONGC may take one year even after the government securing the Cabinet nod.
The Ministry of Petroleum and Natural Gas is learnt to be in favour of adopting a subsidiary model for combining the two oil PSUs instead of merging the companies, making ONGC the parent company of HPCL. News reports have also said that the government would decide final model of combining the two companies in few months.
According to various reports, the government is also mulling whether to approach capital markets regulator SEBI (Securities Exchange Board of India) to seek an exemption for making an open offer to other shareholders. Indian takeover norms mandate an open offer to buy up to 26% equity stake from the public in case of acquisition of more than 26% equity stake in a listed firm.
Further, the government is also reportedly considering forming a Group of Ministers (GoM) to frame guidelines, price and timeframe for the share sale. Finance Minister Arun Jaitley, road minister Nitin Gadkari, oil minister Dharmendra Pradhan and power minister Piyush Goyal will likely be part of the proposed GoM.
A vertically integrated oil company would be better able to absorb the fluctuations in the global crude oil prices, as when the exploration unit will suffer from falling prices, the refining unit will benefit, and vice versa. Earlier in February, Finance Minister Arun Jaitley proposed setting up an integrated oil PSU (public sector undertaking) by merging companies with synergy in order to match the scale of the global oil giants.