New Delhi, July 19: The Union cabinet today gave its in-principle approval to the sale of the government's 51 per cent stake in HPCL to ONGC. The two oil majors will retain their separate brand identity, but HPCL will become a subsidiary of ONGC.
Sources said a committee headed by finance minister Arun Jaitley would take up the task of completing the sale within a span of a year and appointing merchant bankers to advise on the consolidation.
ONGC had sent a proposal to acquire HPCL today, oil minister Dharmendra Pradhan said in Parliament on Wednesday.
The net financial effect will be a transfer of over Rs 25,000 crore from ONGC to the government coffers as consideration for the sale. Till now, the government has managed to sell stakes in state- run firms aggregating Rs 7,896.87 crore.
The takeover by ONGC, which has a market cap of Rs 2,01,866.79 crore, will make it one of Asia's largest oil and gas majors by market capitalisation and assets, besides adding to ONGC's (which is primarily an oil explorer) refining capacity.
Incidentally, according to 2016-17's financials, HPCL has a much larger revenue base at Rs 2,13,802.99 crore compared with ONGC's Rs 77,907.73 crore. However, ONGC has a higher bottom line of Rs 17,899.97 crore against HPCL's Rs 6,208.80 crore.
Officials said the buyout of HPCL may be the first of many more moves in the oil and gas space to create larger entities which would be of a global scale. No Indian firm figures in the list of top 25 oil and gas majors in the world. US, Chinese, British, European, Russian, Saudi and Iranian firms are among the top 25.
Officials said the takeover will not require a public offer as a special leave will be taken from market regulator Sebi for the sale without kicking in the clauses of the companies act.
Foreign brokerage CLSA in a note said: "Minority holders of HPCL may not see an open offer while those of ONGC may not be able to prevent net leakage equal to over 8-11 per cent of the current stock price."
For the bourses, the move seemed to be not too exciting as far as ONGC was concerned. While the ONGC stock traded at Rs 191.80 on May 2, it now trades at Rs 162.55 despite a slight uptick in the course of the day.
However, for HPCL the deal seemed to be positive. The stock has been rising through the year and closed at Rs 384 today, just short of its 52-week high of Rs 392.
The news had a rub-on effect on other oil stocks too. Shares of Indian Oil, BPCL and Oil India rose during trade today. Oil India shares rose as much as 2.27 per cent.
Officials said ONGC had been earlier asked to consider taking over BPCL, but had preferred HPCL as it would have been more costly to take over the former Burmah Shell firm as its market cap at over Rs 98,000 crore was nearly double that of HPCL, which stood at just a tad over Rs 52,000 crore.
ONGC already has a refining subsidiary in Mangalore Refinery and Petrochemcials.
Officials said ONGC will have to use part of its cash reserves of over Rs 13,000 crore to fund the purchase. The rest will have to be leveraged through either a loan or a bond issue in the foreign market.
