State-run ONGC has got its borrowing limit raised to Rs 35,000 crore to fund its acquisition of the government’s entire 51.1% stake in Hindustan Petroleum Corporation (HPCL) in an off-market deal. Earlier, the debt-free firm was given approval for mobilising Rs 25,000 crore from the market. Addressing the media on Sunday, ONGC’s CMD Shashi Shanker, however, said the company has kept all financing options open. “There are the options of internal accruals, liquid assets and short-term borrowings. We will exercise the most beneficial option available with us,” he said. The deal will be closed by the end of January. While the company has around Rs 13,000 crore in cash, its liquid assets include stake in the country’s largest refiner Indian Oil Corporation (13.77%) and gas utility GAIL India (4.87%).
Shanker added the company has lined up lenders who are willing to lend a combined Rs 50,000 crore “at reasonable rates.” This will be the first debt to be raised by the company which has been debt-free. The company will exercise the most cost-efficient option and will not make any stressed sale, he said. ONGC on Saturday, through a stock market filing, announced acquisition of government’s 51.11% stake in HPCL at a cash consideration of Rs 36,915 crore. On being asked how the company reached at the valuation, Shanker said the value has been arrived upon after doing internal due diligence, though he did not disclose what factors were considered.
“We gave the task of independent valuation to EY and the amount being paid is well within what was told to us by the advisor,” said Shanker. ONGC will be purchasing HPCL shares at a 14% premium value of of Rs 473. 97 per share compared with the current market price of Rs 416.55 at the close of trading on January 19, 2018. The price bid was accepted on Saturday and ONGC has also signed a sale-purchase agreement with the government.While HPCL will retain its brand and will be a listed subsidiary of ONGC post the deal, the combined entity will be able to leverage the oil marketing company’s marketing network and refining capacity, and will utilise its own crude production. “It will help in hedging against volatile crude prices,” said Shanker.
In addition, it will also mean better priced crude oil sourcing for Mangalore Refinery and Petrochemicals (MRPL), a subsidiary of ONGC. According to Shanker, while there is no immediate plan to merge the refiners—MRPL and HPCL—at present, the option will be evaluated in the future.“HPCL is a professionally run company and it will continue on its growth roadmap, at least in the short to medium term,” he said.