The Centre and state-run oil explorer ONGC on Saturday clinched a deal for the latter’s acquisition of the government’s 51.11% stake in Hindustan Petroleum Corporation (HPCL) for a consideration of Rs 36,915 crore. Earlier in the day, an empowered panel headed by finance minister Arun Jaitley had approved the price bid. The all-cash deal will help the government boost its non-debt capital receipts when some revenue streams are weak; for ONGC, the vertical integration to be achieved once the oil marketer comes to its fold will enable it to mitigate the risk of crude price volatility. In a stock market filing, ONGC said it will acquire the government’s entire 778,845,375 equity shares in HPCL at `473.97 per share compared with the current market price of Rs 416.55, a premium of around 14%. The deal will be closed by end of January 2018. As reported by FE earlier, the premium has been computed after evaluating HPCL’s physical assets, marketing network, debt, investments and brand strength.
While presenting the last Union Budget, Jaitley had said state-run oil companies will be merged to create an ‘oil major’ and the Cabinet Committee on Economic Affairs had on July 19, 2017, granted ‘in-principle’ approval to the strategic sale. This also included change in management control, though HPCL will retain its brand as a subsidiary of the national oil explorer. “HPCL and ONGC have a complementary asset portfolio and through this acquisition, ONGC is gaining a midstream and downstream presence and access to a marketing network,” ONGC said in the company filing.
HPCL had a turnover of Rs 2,13,489 crore and profit after tax of Rs 6,502 crore during 2016-17. It markets around 35.2 million tonne of petroleum products — a market share of about 21% — and has around 15,000 fuel retail outlets. ONGC contributes around 70% of Indian domestic production of crude oil and natural gas. For the Centre, which is facing a shortfall in indirect tax receipts and also certain elements of non-tax revenue, the government-owned explorer’s announcement is a major relief as the disinvestment target will be exceeded ahead of the Budget. While Rs 55,537 crore has already come in through disinvestments during FY18, the ONGC payout will make it Rs 92,452 crore. The total disinvestments by the end of the current financial year might exceed Rs 1 lakh crore.
SBICAP and Citigroup were appointed by ONGC as merchant bankers for the deal and Shardul Amarchand Mangaldas as the legal adviser. On its part, the government had appointed JM Financial as the transaction adviser and Cyril Amarchand Mangaldas as the legal consultant to prepare an information memorandum on HPCL. The ONGC-HPCL deal is a related party transaction between the government and a government company within the meaning of the SEBI (Listing Obligations and Disclosure Requirements) Regulation 2015 and the Companies Act, 2013 (Act). The acquisition has been made on an arm’s length basis and the transaction is exempt from the requirement to make an open offer, ONGC said in the filing.
“Through this acquisition, ONGC will become India’s first vertically integrated oil major, having presence across the value chain. The integrated entity will have advantage of having enhanced capacity to bear higher risks, take higher investment decisions and neutralising the impact of volatility of global crude prices,” the government said in a release. As for HPCL, as part of an integrated oil and gas group, the deal will help it in further leveraging synergy at various levels of vertical value chains, it added.