ONGC gets government nod to sell stake in IOC, GAIL to fund HPCL acquisition

By: | Published: January 23, 2018 2:19 PM

Oil and Natural Gas Corp (ONGC) has received approval from the government for selling its stake in IOC and GAIL to help fund the Rs 36,915 crore acquisition of HPCL, PTI reported. ONGC holds 13.77 percent stake in nation's biggest refiner Indian Oil Corp (IOC).

ONGC, HPCL, Shashi Shanker, Indian Oil Corporation, GAIL India, MRPL, stock market,  crude production, marketing network ONGC holds 13.77 percent stake in nation’s biggest refiner Indian Oil Corp (IOC). (Image: Reuters)

To help fund the Rs 36,915 crore acquisition of HPCL, Oil and Natural Gas Corp (ONGC) has received approval from the government for selling its stake in IOC and GAIL, PTI reported. Government gave ONGC nod to sell its shareholding in IOC and GAIL earlier this month but the company is waiting for the right price to offload the shares, PTI cited unidentified sources. ONGC holds 13.77 percent stake in nation’s biggest refiner Indian Oil Corp (IOC), which at today’s trading price is worth over Rs 26,200 crore. It also holds 4.86 per cent stake in gas utility GAIL India Ltd, which is worth over Rs 3,847 crore.For the moment ONGC is funding the Rs 36,915 crore acquisition of government’s 51.11 per cent stake in oil refining and marketing firm Hindustan Petroleum Corp Ltd (HPCL) from the about Rs 12,000 crore cash it has and short-term borrowing.

ONGC had held talks with Life Insurance Corp of India (LIC) for selling IOC and GAIL shares but the state- owned insurer insisted on buying them at 10 percent discount to the prevailing price. So, ONGC has decided to offload the shares in open Market, PTI cited unidentified sources.

Earlier, research and brokerage firm Macquarie said that the deal puts ONGC in a comfortable position, as the firm would see a 9% EPS accretion. The firm has reiterated its outperform rating on the shares. “For HPCL, reference valuation is at a 14% premium to last close. HPCL bulls will be disappointed as price is below Rs 650 valuation,” the firm noted. Accordingly, Macquarie has a neutral call on the shares of HPCL with a target of Rs 475. HPCL shares lost more than 2% this morning, and were trading at Rs 404.15 on NSE.  The firm observed that ONGC’s consolidated net Debt-Equity will be manageable at 35%. The global firm said that shares of ONGC remain it’s top large cap pick from E&P space in Asia.

Another global firm, Jefferies has retained its buy call on the shares of ONGC, while maintaining underperform on HPCL. The firm said that earnings remain central for ONGC’s share price outlook. “ We peg HPCL’s march 2018 FV at Rs 349, 27% lower than what ONHC is paying.” As of 31 March, ONGC’s consolidated debt stood at Rs 55,681 crore, translating into debt-to-equity of 0.25 times. IDFC Securities estimates ONGC group debt (including the $1.2 billion for Gujarat State Petroleum Corp. Ltd’s Krishna-Godavari assets and $2.2 billion for Russia’s Vankor field) could rise substantially if it buys the 51% stake in HPCL by raising debt and by not monetizing its ~14% stake in IOCL.

With PTI inputs

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