State-owned Oil and Natural Gas Corp (ONGC) has sought shareholder approval for its decision to buy government’s 51.11 per cent stake in Hindustan Petroleum Corp Ltd (HPCL) for Rs 36,915 crore. With government also being a majority shareholder in ONGC, the acquisition fell in the definition of related party transaction for which shareholder nod is needed as per law, the company said in a shareholder notice seeking approval for the deal through a postal ballot. “However, as a related party to the transaction, there will be no participation by the government of India in the postal ballot process,” it said.
ONGC said it bought the entire shareholding of the government of India in HPCL at Rs 473.97 per share. The transaction was consummated as an offmarket transaction on January 31, after which ONGC had become the holding company of HPCL, it said. ONGC said it was seeking shareholder “ratification through postal ballot for acquisition of 77.88 crore equity shares, representing 51.11 per cent, in the paid-up capital of HPCL from Government of India (GoI)” since the GoI, being the promoter, is a related party.
A March 30, 2017, government notification specifies the limits for transactions beyond which related party transaction shall require approval of the shareholders. With regard to the category of ‘sale, purchase or supply of any goods or materials’, limit has been prescribed as 10 per cent or more of turnover or Rs 100 crore, whichever is lower. “The transaction between GoI and your company for sale and purchase of 51.11 per cent shareholding of the GoI in HPCL at its market capitalisation exceeded the threshold limit,” ONGC said in the notice to shareholders reasoning the approval.
ONGC said the Companies Act of 2013 provides for ratification by shareholders within three months of any agreement entered without such explicit nod. “Since the price per share was the critical element of the transaction and it was agreed only on January 20, 2018, and also incorporated in the ‘share purchase agreement’ entered into between the GoI and the company on that date, the prior approval was impracticable,” it said. “Accordingly, the present proposal seeking the ratification of the transaction by the members is sent.”
While ONGC is predominantly an upstream oil and gas production, HPCL is a oil refining and fuel marketing company. With acquisition of HPCL, ONGC would have presence across the entire value chain in the oil and gas industry and emerge as an integrated oil and gas company, the company said in the notice. “The acquisition will bring synergies between both the companies.” ONGC said SEBI granted specific exemption to this transaction from making the mandatory open offer in such acquisition as the ultimate ownership of HPCL wasn’t changing.
“The company has also applied to the ministry of corporate affairs for a clarification/exemption for related party transactions between the Government of India and government companies. Accordingly, in case the exemption/substitution notification is issued by ministry of corporate affairs before the last date for postal ballot process, the resolution shall be withdrawn as not being required in view of such exemption,” it said. Late date for postal ballot is March 27. ONGC said its board commends the resolution for the ratification of the members.