Union Cabinet today approved sale of government's stake in Hindustan Petroleum Corpration Ltd (HPCL) to Oil and Natural Gas Corporation (ONGC). HPCL buying ONGC stake's will give the explorer ₹16,414 crore at Wednesday's closing price. "The way the crude prices are behaving it is very very important for any company of this stature to look at balancing the risk and the integration model", said RS Sharma, Former CMD, ONGC in a chat with ET Now, highlighting that the deal will have a positive impact on ONGC too. "We believe long-term holders should get concerned as the deal gets closed and HPCL becomes a subsidiary to ONGC, which does not have such a good track record on capital allocation", the note said.
ONGC now owns 71.63% of MRPL while HPCL has 16.96%.
Pre-merger, HPCL is likely to take over Mangalore Refinery and Petrochemicals Ltd.to bring all the refining assets of ONGC under one unit.
However, ONGC is reported to be looking to sell its 13.8 per cent stake in Indian Oil Corporation Ltd, valued at more than Rs25,000 crore, to finance the buyout.
ONGC Chairman and Managing Director Dinesh K Sarraf said the funding plans for the acquisition are in place but refused to reveal them citing market sensitivities. In its current form, the deal will help the government achieve close to 40 per cent of its divestment target of '72,500 crore for this financial year.
Sources also said the ONGC will buy government's 51.11 per cent stake in HPCL but will not have to make an open offer as the government's holding is being transferred to another state-run firm and the ownership is not changing.
As per market norms, companies are required to acquire an additional 26 per cent from the market.
The recent flurry of activity to integrate government-owned Oil Marketing Companies (OMCs) with oil and gas exploration companies follows Finance Minister Arun Jaitely's announcement during the 2017-2018 budget speech on the government's plan to create an integrated public sector "Oil Major" rivalling global and domestic private sector oil and gas companies.