Exploration giant ONGC will acquire the government’s 51.11 per cent stake in HPCL through bulk or block deal in November or December, reported PTI. 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.
ONGC has appointed SBI Cap and the Citi Group as its merchant bankers for the deal and Shardul Amarchand Mangaldas as legal advisor, who would study the IM to arrive at a valuation for the takeover of the country’s third-largest refining and oil marketing company. The deal is likely to fetch over Rs 33,000 crore to the government at the current market price.
As the merger deal inches ahead, the minority shareholders in HPCL may not gain or lose much from it, apart from the gain or loss in the share prices.
ONGC will do the due diligence of HPCL’s assets based on the IM and publicly available information to arrive at the valuation. Negotiations between ONGC and the government will follow if the valuation is vastly different from the one the government has arrived at, PTI reported.
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 per cent stake in HPCL to ONGC. At today’s trading price of Rs 428.75, ONGC would have to pay Rs 33,268 crore for buying the government’s 51.11 per cent stake. Had it been required to make an open offer, it would have had to shell out additional Rs 17,100 crore to buy another 26 per cent from the open market.
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 last week 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 per cent in MRPL.
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 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.
Bulk and block deals
Both bulk and block deals are done on stock exchanges. A block deal happens when a transaction involves a minimum quantity of 5,00,000 shares or a minimum value of Rs 5 crore between two parties. Such deal takes place through a separate window at the beginning of trading hours for the duration of 35 minutes i.e. from 9.15 am to 9.50 am in a price range of +1% to -1% of the ruling market price.
A bulk deal is a trade where the total quantity of shares bought or sold is more than 0.5 per cent of the number of shares of a listed company. Bulk deals happen during the normal trading window provided by the broker.