Government appointed advisors to decide on valuations of company: HPCL

When asked about open offer, he said open offer is to be made by the buyer. As far as the company is concerned, we (HPCL) are not required to take any action on that except for what is required as per Securities and Exchange Board of India (SEBI) and Companies Act, he added.

Below is the verbatim transcript of the interview:

Anuj: Last time when we spoke to you, you had pointed out that HPCL has its own assets, HPCL has its own triggers and market price is not the best way to look at transfer of ownership from government to ONGC. Now we believe it will happen via block deal. Does that mean that there is no independent valuation for HPCL?

A: I had said last time that there are various methods to evaluate a company. Market valuation or the share price maybe one of the thing but there are number of other methodologies and evaluation is done based on the combination or the best of various methodologies which are possible. The block deal or the bulk deal is a methodology to executive those deals. As far as my understanding is concerned, of course it depends between the buyer and seller to arrive at the price which is acceptable to both of them and depending on what the buyer consider is the right price and what the seller consider is the right price.

We suggest that evaluation is not to be done. Government has appointed the advisors and they are doing their job as of today to evaluate the company and in that case after evaluation whether the market price is reflecting that or not that will be arrived at after that and then what should be the methodology to execute the deal that is to be decided between the buyer and the seller.

Anuj: The report said that the bulk deal will be done at the prevailing market price and the bulk deal and block deal also have formulas depending on the market price. So there cannot be too much premium though the prevailing market price or the current market price?

A: There are certain guidelines in the Sebi takeover code when the majority of the stakes are getting transferred which is 26 days average, 6 months average etc. So as far as the block deal or bulk deal, which happens, they are at the prevailing prices on that day. So independently the relation process is on and I do not have any input to suggest or to assume that that process is changed. So advisors have been appointed, they are doing their jobs and after that whatever evaluation methodology they adopt and the valuation they find then compared to market price, how it stacks at that point of time and that would decide the method of executing the deal. So as of today for me it's premature to comment whether it is a block or bulk deal

Latha: That means you are denying that it is going to be a market related pricing. You are saying it will be an independent valuer decided pricing?

A: I am not denying that it need not be market determined or something. What I said is the government has appointed evaluation advisors and they are doing their job and after they complete their exercise one of the methodologies can be the market price but that can be one of the ways to do it but that does not mean that is the only ways to do it and after they decide and they come back with valuation then it decide whether the market value is reflecting that price and then the methodology of execution the deal can be decided. This is my understanding of the whole issue. Of course it has to be decided between the buyer and the seller.

Anuj: But personally are you a bit disappointed. Would you have wanted this valuation report to come out first and then maybe the announcement that the deal would happen via the bulk deal window?

A: I do not think there is any announcement to that effect at least I am not aware that whether there is an announcement to that effect.

Anuj: There is a Press Trust of India (PTI) copy which is saying that it is going to happen via block deal?

A: Yes but they are talking about the execution methodology, but unless the evaluation exercise is over I won't be able to suggest or comment that this will be the way.

Surabhi: The same report is also talking about whether there is going to be an exception which means the buyer will not have to deal with an additional open offer because that makes the cost far more substantial for the buyer. Are you aware of any sort of communication with this regard that certain perhaps legalities within the Companies Act could be looked at to ensure that there is no need for an open offer?

A: The open offer is to be made by the buyers. As far as the company is concerned, we are not required to take any actions on that except for what is required as per Sebi and Companies Act.

As of today there is no additional input to suggest either way to us. Only because of the open offer is to be done or not done - that is the way it should be block deal. There is nothing like that. And even if the exemption is to be taken, there are provisions to that fact.

Anuj: Marketing margins - that has been an issue of debate. Where has it settled? Has it settled a bit lower over the last couple of fortnight? Has there been a bit of directive from the government to reduce the marketing margins? I think it was Rs 4-4.5 for petrol and it is settled at Rs 2.5-2.7 over the last three or four days looking at the Indian Oil Corporation's (IOC) website and I am assuming that it would be similar for you?

A: As far as domestic prices are concerned, they are day-to-day basis being decided by the oil marketing companies (OMCs) based on the international prices and the moment and accordingly the domestic prices have been declared on everyday basis since the time the daily pricing has been implemented. So sometimes you may see the marketing margins a bit more or a bit less.

Anuj: A bit more or less is fine but the point I am asking is has it been significantly lower over the last four-five days compared to previously?

A: You should not be judging by day-to-day basis also - that part. If it is lower, you all should be happy.

Latha: I am asking you if margins have fallen by design since there is a good 2 percentage point difference from what we saw two weeks ago.

A: No. It will also depend on some other factors apart from what you will see. Just the difference between the refinery transfer price (RTP) -- probably the way you people look at it; it is the total selling price minus the RTP minus taxation. As far as total marketing margin and expenses are concerned, it will also depend on procurements been sold on which date. So there will be a bit of variation to up or down to that extent on day-to-day basis, but on a longer term basis I wouldn't say there is much of a difference between the average marketing margins which we get....

Latha: No directive at all from the government that the consumer should be spared a little of the rise in both crude and the depreciation in the rupee. No directive at all. You will continue to price it higher?

A: There are two parts to it. As far as crude prices and the rupee exchange rate is concerned, that may determine the RTP part of it. As far as RTP is concerned, it is not purely guided by the cost of the crude and exchange rate and it is not built-up on cost of crude plus expenses in refining. It is based on the international pricing of the products. International prices of the products need not necessarily move exactly in tandem with the crude prices. It also depends on the crass, for example crass has softened a bit in last two-three days, from USD 15 or so on gasoline it has come down to USD 13. So the prices of the products may have slight variations to the crude prices and we should not directly correlate to that - that's one. Second, there is a time cycle between the crude is procured and products are refined and supplied. So there maybe impact of time also to that effect.