Govt to sell its HPCL stake to ONGC for Rs36,900 crore

Doris Richards
January 23, 2018

The government will sell its entire stake in state-run refiner Hindustan Petroleum Corporation Ltd to public sector explorer Oil and Natural Gas Corp (ONGC) for Rs36,900 crore ($5.78 billion), ONGC said today.

Had similar rules applied to ONGC, it would have had to shell out an additional Rs 18,800 crore in offering the same Rs 473.97 per share to minority shareholders.

Top sources with direct knowledge of the issue said the government gave ONGC nod to sell its shareholding in International Olympic Committee and GAIL earlier this month but the company is waiting for the right price to offload the shares.

The Supreme Court had in 2003 cited this law and the Burma Shell (Acquisition of Undertaking in India) Act, 1976 and Caltex (Acquisition of Shares of Caltex Oil Refining India Ltd and all the Undertakings in India for Caltex India Ltd) Act, 1977 to rule that the government can not privatise HPCL and Bharat Petroleum Corp Ltd (BPCL) without approaching the Parliament for changing the Nationalisation Act.

He was speaking after Oil and Natural Gas Corp (ONGC) announced on Saturday that it was buying the government's 51.1 percent stake in HPCL to create India's first integrated oil and gas company.

Currently, ONGC is funding the acquisition of government's 51.11% stake in oil refining and marketing firm HPCL from the about Rs12,000 crore cash it has and short- term borrowing. The short-term loan it is availing have provision to pre-pay without any penalty. Pradhan said he believed the integration of more such oil and gas companies was possible as these companies were established for a certain objective and integrating them will help meet that objective. This will be the company's first ever debt. "Also, we have offers for over Rs 50,000 crore debt at very competitive rates, both foreign currency and local". He, however, refused to share details.

ONGC will pay Rs473.97 per share for HPCL against the closing price for the shares on Friday of Rs416.2.

With the HPCL stake sale, the government's disinvestment receipt will rise to Rs91,252.6 crore, almost 26 per cent above the targeted Rs72,500 crore. The outside advice the company took from Citi put the price at Rs500 per share.

The stake sale will help the government cross its sell- off target for the first time and would help stick to the fiscal deficit target of 3.2% of gross domestic product. In October, an official from International Olympic Committee had said that the company was keen on buying the government's stake in either GAIL or Oil India. Asked how the ONGC-HPCL deal was different from Indian Oil Corp (IOC) in 2002 taking over fuel retailer IBP Co Ltd in 2002, he said, "HPCL is governed by Nationalisation Act".

ONGC's purchase of a majority stake in HPCL is expected to close by the end of this month and Pradhan said there was a possibility to combine HPCL with ONGC's petrochemical projects and its refining arm Mangalore Refinery and Petrochemicals Ltd.

At 2.03pm, ONGC shares traded 3.75% up at Rs207.45 on BSE, whereas HPCL shares fell 1.47% to Rs395.85.

Other reports by Iphone Fresh

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