State-run exploration giant ONGC on Thursday sought to firm up the ground for not having to pay a premium over the fair value for the government-nudged purchase of PSU refiner HPCL’s majority stake. ONGC, which is all set to acquire the government’s 51.11% stake in HPCL, reportedly in bulk or block deals, said that the company is confident of not paying the premium on the purchase of shares.
ONGC’s outgoing Chairman Dinesh K Sarraf said in an interview to ET Now that since HPCL is a listed company with a large free float and thus has a good price discovery, ONGC would not need to pay a premium over the market value. Further, D K Sarraf also said that while as the seller, the government’s duty is to ask for the maximum value for its stake in HPCL, it also has a duty to preserve ONGC’s value as its promoter.
ONGC will use its Rs 10,000 worth of liquid cash to fund the deal, while the company’s shareholders have approved raising Rs 25,000 crore in borrowings as well, D K Sarraf, who is due to retire in this week, said. At current market price, a 51.11% equity stake in HPCL is valued at slightly above Rs 32,100 crore. D K Sarraf said that the merger ONGC-HPCL merger will conclude in a couple of months, and that both, the company and the government, have appointed their consultants.
Last week, PTI reported that ONGC will acquire the government’s 51.11 per cent stake in HPCL through bulk or block deals in November or December. Post merger, HPCL will become ONGC subsidiary but will retain its brand.
ONGC has appointed SBI Cap and the Citi Group as its merchant bankers for the deal and Shardul Amarchand Mangaldas as legal advisor to arrive at a valuation for the takeover of the country’s third-largest refining and oil marketing company. 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% stake in HPCL to ONGC.
MRPL to go along with HPCL?
There is no clarity on the fate of MRPL, which is a subsidiary of ONGC and HPCL. HPCL chairman and managing director M K Surana earlier this month said that any discussion on the fate of MRPL has not been taken yet, but it is likely that the subsidiary company will “along with HPCL”. HPCL owns 17% in MRPL.
Experts had earlier pointed out that since MRPL and HPCL are essentially in the same business, it doesn’t make sense for ONGC to keep two separate companies under its fold.
HPCL owns and operates two major refineries producing a wide variety of petroleum fuels and specialities, one in Mumbai (West Coast) of 7.5 million tonnes per annum (MMTPA) capacity and the other in Visakhapatnam (East Coast) with a capacity of 8.3 MMTPA.