ONGC buys Govt’s 51.11% stake in HPCL for Rs 36,915 crore

Source: The Hitavada      Date: 21 Jan 2018 10:14:27



THE State-owned Oil and Natural Gas Corp (ONGC) on Saturday announced acquisition of Government’s entire 51.11 per cent stake in oil refiner HPCL for Rs 36,915 crore, paying a premium of over 10 per cent.

ONGC will pay Rs 473.97 per share for 77.8 crore shares of the Government in Hindustan Petroleum Corp Ltd (HPCL), the company said in a stock exchange filing. The price it is paying is 14 per cent higher than Friday's closing price of HPCL and over 10 per cent of the 60 -day weighted average of the scrip.

The transaction, which will help the Government cross its annual sell-off (disinvestment) target for the first time ever, has been executed through an off-market deal. While the Government started off talks for selling controlling stake in the country’s third largest oil refining and fuel marketing company, seeking about Rs 1 lakh crore on grounds that an open sale would fetch no less than that, what ONGC paid was far less.

ONGC’s own valuation adviser EY had put HPCL’s valuation at Rs 475 a share plus a premium for getting the controlling stake, sources privy to the negotiations said. The outside advise the company took from Citi put the price at Rs 500 per share.

ONGC negotiated hard and brought down the acquisition price, they said adding the company would do short-term borrowing to fund the acquisition that would be an all cash- deal to be completed by end of the month. Also, the company has cash reserves of about Rs 12,000 crore.

Sources said that ONGC had already taken board approval for raising borrowing limit to Rs 35,000 crore from the previous approval of Rs 25,000 crore. Also, it had loan commitments from domestic and foreign lenders totalling roughly double the acquisition prices and the company would draw from them to make the payments in next one week, they said.

Based on Friday’s closing price of Rs 416.55, HPCL has a market capitalisation of about Rs 63,475 crore. At this price, the Government’s 51.11 per cent stake is worth Rs 32,442 crore.

“Government of India has entered into an agreement with ONGC today for strategic sale of its 51.11 per cent equity share-holding in HPCL at a consideration of Rs 36,915 crore,” the Finance Ministry tweeted.

The Ministry reasoned the merger to the February 2016 review called by Prime Minister Narendra Modi where he “underlined the need of efficient management of Government investments in Central Public Sector Enterprises (CPSEs)”. The Government accordingly expanded the approach from of disinvestment to investment and public asset management.