Modi’s giant oil PSU plan takes shape as Cabinet OKs ONGC HPCL merger, waives open offer

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Updated: July 20, 2017 1:02:10 PM

The government’s plan to build a mega oil PSU of global scale got a shot in the arm today with the Union Cabinet clearing the proposed acquisition of state-run refiner and marketer HPCL by the oil exploration and production giant ONGC.

HPCL will retain its brand after its acquisition by ONGC. (Image: Reuters)

The government’s plan to build a mega oil PSU of global scale got a shot in the arm on Wednesday with the Union Cabinet clearing the proposed acquisition of HPCL by ONGC. The sale of the 51.1% stake in state-run refining and marketing company HPCL, held by the government, to oil exploration and production firm ONGC could fetch the government about Rs 29,000 crore at current market prices.

However, there was no clarity yet on the price that ONGC will pay for the acquisition. Earlier this month, ET Now had reported that the government is considering asking it to shell out 405-50% premium for HPCL’s equity stake. Later, another news report said that ONGC officials are of the view that no premium is required to be paid since HPCL is openly traded in the market and is already fairly valued.

PMO steps in

Earlier June, there were news reports that the Prime Minister’s Office had expressed its disappointment on the slow progress on the amalgamation of Oil and Natural Gas Corp and Hindustan Petroleum Corp Ltd, following which, the Department of Disinvestment issued a Cabinet note on the proposed merger.

The government seems to have opted for acquisition route for combining the two companies, making HPCL a subsidiary of ONGC rather than merging the two. HPCL will retain its brand post merger. However, minority shareholders in HPCL may not gain or lose much from the deal, apart from the gain or loss in the share prices, as the deal will be exempt from the mandatory open offer required in cases of acquisition of more than 26% equity stake. The government will form a committee to frame the modalities and oversee the proposed merger.

More integration up ahead

The Cabinet also said that the merger of ONGC’s existing unit — the smaller refiner MRPL (Mangalore Refinery and Petrochemicals Ltd) is expected at later stages. Experts have 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 in it.

The Cabinet has said that the integration of other oil companies will soon be taken up after the HPCL’s takeover by ONGC. This week, ET Now reported that the government is already considering combining the behemoth refiner and marketer Indian Oil Corp and smaller oil exploration firm Oil India Ltd, even as the ONGC-HPCL deal was yet to be finalised.

Wait not over yet

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 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.

(First published on Wednesday, July 19, 2017 on

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