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

The logo of Oil and Natural Gas Corp's

With the merger of Hindustan Petroleum Corp Ltd (HPCL) into Oil and Natural Gas Corp Ltd (ONGC) nearly complete, the focus will now be on the possible acquisition of the government's stake in Oil India Ltd (OIL) or GAIL (India) Ltd, by Indian Oil Corp Ltd (IOC) or Bharat Petroleum Corp Ltd (BPCL), reports Cogencis.

Share price of IOC, Gail and ONGC surged on the stock exchanges.

Currently, ONGC holds 13.77% stake in International Olympic Committee which is valued at Rs 26,200 crore, while it has 4.86% holding in GAIL India worth Rs 3,847 crore at current market price.

Top sources with direct knowledge of the issue said in a PTI report that, the government gave nod to sell ONGC's stake 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.

Pradhan said HPCL will continue to be a separate listed company even after ONGC acquisition. The short term loan it is borrowing have provision to pre-pay without penalty. This would be ONGC's biggest acquisition and second buyout this fiscal after its Rs 7,738 crore acquisition of 80 per cent stake in Gujarat State Petroleum Corp's KG basin gas block.

According to them, the deal is expected to make ONGC the first integrated PSU company in oil and gas segment, as ONGC now controls both MRPL & HPCL as ONGC already controls a 15 million tonnes refinery through MRPL and would increase capacity to 40 million tons refinery. This will be the company's first ever debt.

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"We will use our (Rs 12,000-13,000 crore) cash first and then the liquid assets and debt will be last", Shanker had said.

"We are bound by the Nationalisation Act and character of HPCL could not have changed so no open offer was mandated", Pradhan told reporters here.

Shanker had said the company paid less than the acquisition price recommended by the company's valuation adviser, Ernst and Young (EY).

The Rs 473.97 per share ONGC is paying to the government 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 HPCL scrip.

On the other hand, the share price of Hindustan Petroleum Corporation Limited (HPCL) tumbled by almost 2% and was trading at Rs 395.10 per piece on the BSE.

The proceeds from the HPCL stake sale will also help the government meet its divestment target. 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. Before the ONGC-HPCL deal, it had collected Rs54,337.60 crore. The Sensex was up 0.86% at 36,104.42 points.

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