Published: Thu, July 20, 2017
Markets | By Erika Turner

Cabinet gives in-principle nod to ONGC-HPCL merger

Cabinet gives in-principle nod to ONGC-HPCL merger

India approved the sale of a $4.6 billion stake in state-run refiner Hindustan Petroleum Corp.to the country's biggest oil and gas explorer, according to a person with knowledge of the decision.

As per a PTI alert, ONGC will not have to make open offer post buying 51.11% government stake in HPCL. "We believe long-term holders should get concerned as the deal gets closed and HPCL becomes a subsidiary to ONGC, which does not have such a good track record on capital allocation", the note said.

"This deal will make both ONGC and HPCL stronger as the benefits of synergy are huge", ONGC Chairman Dinesh Kumar Sarraf said in a phone interview on Wednesday. "Process for in-principle approval for this proposal has been initiated". Going by HPCL's present market value, ONGC may have to shell out Rs 28,000 crore to the government. ONGC now owns 71.63 per cent of MRPL while HPCL has 16.96 per cent stake in it. ONGC also owns a majority stake in Mangalore Refineries & Petrochemicals Ltd, which operates a 15 million-ton-a-year refinery in Mangalore, Karnataka. Clarifying the deal, Saraff added that ONGC is "not talking" about merging HPCL as the brand of the refining and marketing company will continue to remain in place.

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Sources said the government was initially looking at creating an integrated oil company through merger of an oil producer with a refiner but the idea was dropped for the fear of repeating the Air India-Indian Airlines kind of a merger which is not considered successful. Possibilities of such restructuring are visible in the Oil and Gas sector.

"While the minority shareholders of ONGC may not like this acquisition, our reading of Indian law is that this government-to-government transaction may not require any specific approval from the minority shareholders", the brokerage said.

The source, cited earlier, said a committee - headed by Finance Minister Arun Jaitley and comprising Pradhan and Road Transport Minister Nitin Gadkari - has been constituted to work out the modalities.

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