Most brokerages were disappointed on the exemption from open offer in ONGC's mega buyout of HPCL, which they said will be negative in near term for the target company's shares.
ONGC shares jumped while HPCL shares tumbled in the opening trade on Thursday after the Union Cabinet yesterday approved the proposed acquisition of HPCL by ONGC, but exempted the deal from an open offer, leaving HPCL’s minority shareholders with no potential gains from the mega buyout transaction worth about 29,000 crore. On the other hand, the exemption from making an open offer to buy up to 20% of HPCL’s equity share from the public was seen as a positive for ONGC, which will not have to shell out extra money on buying additional equity shares beyond the 51.1% controlling stake that it will acquire from the government. ONGC shares rose 2.9% to Rs 167.8, while HPCL fell as much as 5% to Rs 364.75 on BSE.
HSBC Securities: No open offer for HPCL minority shareholders is a near-term negative, HSBC Securities said even as it kept its ‘buy’ rating on HPCL shares given the long-term potential of the company. The brokerage said it expects HPCL to outperform other PSUs in medium-to-long term. However, it raised a flag on the valuation for the deal, which are yet to be confirmed, saying that it will be an important factor. As for ONGC too, HSBC said that the shares may see some upside in the near term. It has buy rating on ONGC shares.
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Kotak Securities: Domestic brokerage Kotak Securities, on the other hand, has a ‘reduce’ rating on HPCL shares, which it maintained with a target price of Rs 380. Not only this, Kotak Securities further said that HPCL shares may reverse the sharp 12% rally seen over the last one week. No open offer means no gain for HPCL’s minority shareholders, it said. The brokerage kept its ‘add’ rating on ONGC shares with a target price of Rs 190, adding that it assumes ONGC will disinvest its equity shareholding in another state-run giant refiner Indian Oil Corp to fund HPCL buyout.
JP Morgan: Brokerage JP Morgan took a cautious stance on the news. It has neutral call on ONGC shares with a target price of Rs 185, while it said that its ‘underweight’ rating on HPCL does not build in the transfer of ownership. The brokerage said there is still no clarity on key issues with regard to ONGC’s 51% acquisition of the government’s stake in HPCL. However, there could be a relief rally in ONGC shares, JP Morgan said.
IIFL: Domestic brokerage IIFL raised concerns on the modalities of the deal, saying that the transaction won’t be as simple as it is looking currently. It flagged that the government deviating from set processes in ONGC-HPCL deal, such as approval from minority shareholders and no open offer, may raise some questions. Further, the deal does not have any positive for the shareholders of HPCL, as nothing changes from their perspective, IIFL added.