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The Union Cabinet on Wednesday gave an in-principle approval to the proposed acquisition of government’s 51.1% stake in Hindustan Petroleum Corporation (HPCL) by Oil and Natural Gas Corporation (ONGC), paving the way for an Indian oil and gas giant with interests in exploration, production, refining and marketing of the fuel in both India and abroad.
The stake sale will result in HPCL becoming an ONGC subsidiary though the capital market regulator may exempt the latter from making an open offer to buy another 26% stake from the public. As per the norms of Securities and Exchange Board of India, a company has to make an open offer to buy another 26% of the target company if it buys 25% or more in the latter.
HPCL’s equity comprises 1.01 billion shares. At today’s closing price of Rs 384 on the BSE, ONGC will have to fork out Rs 19,938 crore to buy the government’s 519.23 million shares.
The stake sale, thus will help the the government cross a third of its FY18 disinvestment target of Rs 72,500 crore. The government has so far raised Rs 7,896.97 crore through stake sales.
The government aims to achieve its disinvestment target by raising Rs 46,500 crore via minority stake sales, Rs 15,000 crore through strategic stake sales and Rs 11,000 crore from the listing of various public sector insurance companies.
The challenges to the gigantic acquisition will be more administrative and legal than financial. Both ONGC and HPCL were formed by Acts of Parliament and the stake sale will thus need Parliamentary approval, a not-so-easy exercise in an opposition-dominated Upper House.
This consolidation exercise involving an oil and gas explorer acquiring stake in a refining and marketing company goes in line with the government’s intention to create an integrated energy company, as spelt out by Finance Minister Arun Jaitley in his 2017-18 Union Budget.
The international oil and gas sector is dominated by state-owned energy giants — some exceptions being ExxonMobil, Chevron Corporation and Royal Dutch Shell — and this amalgamation will give ONGC the wherewithal to shop more aggressively for foreign assets.
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