India has approved the sale of a stake in state-run refiner Hindustan Petroleum Corp Ltd (HPCL) to the country’s biggest oil and gas explorer, according to a person with knowledge of the decision.
The move fulfills a plan, first outlined in February, to create an Indian oil giant through consolidation and mergers, forming a company comparable with international rivals that could weather crude-price volatility.
Bringing HPCL into its fold will make Oil & Natural Gas Corp (ONGC) the nation’s No. 3 refiner after Indian Oil Corp and Reliance Industries Ltd. The stake is valued at about 299 billion rupees (US$4.64 billion), based on Wednesday’s closing stock price.
“This deal will make both ONGC and HPCL stronger as the benefits of synergy are huge,” ONGC chairman Dinesh Kumar Sarraf said in a telephone interview on Wednesday. “It will add value to shareholders of both companies.”
The Cabinet backed the plan to sell the government’s 51.1 percent holding in HPCL to ONGC, the person told reporters, asking not to be identified because the information is not public.
The deal value is more than 40 percent of the 725 billion rupee target of India’s asset-disposal plan for the fiscal year to March next year.
The HPCL stake sale is unlikely to trigger an open offer as the government’s holding is being transferred to another state-run firm. Under India’s takeover code, if a company acquires more than 25 percent of another listed entity, it has to make an open offer to buy at least 26 percent more.
The immediate reaction of these developments could be negative for HPCL, especially if its minority shareholders are not given an open offer, Citi Research analysts Saurabh Handa and Sohini Banerjee said in a report yesterday.
For ONGC, acquiring a downstream asset like HPCL should be positive for its business mix, they said.
Apart from a proposed US$4.5 billion investment in its oil and gas blocks this financial year, ONGC plans to spend a further US$1.2 billion to acquire Gujarat State Petroleum Corp’s stake in a block off India’s east coast.
The company had surplus cash of 130.14 billion rupees as of March 31, down from 246.9 billion rupees a year earlier, according to an exchange filing.
“We have chalked out a funding plan and that would include a portion of debt as well,” Sarraf said, without giving details.
He also said that the deal would not affect any other ONGC investments.
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