Merger, stake sale: ONGC-HPCL dead is a step closer

The Core Group of Secretaries on Disinvestment (CGD) headed by the Cabinet secretary has approved the broad contours of Oil and Natural Gas Corporation’s proposed acquisition of the government’s 51.11% stake in Hindustan Petroleum Corporation, paving the way for the transaction later this month, sources said. The deal would boost non-tax revenues of the Centre considerably as proceeds from disinvestment alone would be about Rs 1 lakh crore as against the Budget target of Rs 72,500 crore this year. As reported by FE earlier this week, ONGC might shell out around Rs 45,000 crore, 45% higher than market value of the government’s stake in the oil retailer. So far this year, the department of investment and public asset management has garnered about Rs 54,000 crore in disinvestment receipts and another up to Rs 1,500 crore could be raised from an up to 3% stake sale in the ongoing offer for sale (OFS) in NMDC. The institutional investors subscribed the non-retail portion of the OFS by 1.68 times on Tuesday, the first day of the offer. Retail investors would bid on Wednesday. The floor price for the share sale is Rs 153.50 apiece and the total number of shares on sale is 4.74 crore shares or 1.5 % holding with an option to retain a similar portion in case of oversubscription. The NMDC stock ended Tuesday’s session at Rs 154.60, down 4.48% from previous close on the BSE.

ONGC has internally estimated the oil retailer’s worth to be higher than its current market value after evaluating HPCL’s physical assets, marketing network, debt, investments and brand strength, sources said. “The share purchase agreement has been approved by the CGD. The government will soon seek financial proposal from ONGC for its stake in HPCL,” an official told FE. The CGD is understood to have accepted HPCL’s proposal that the company’s central public sector enterprise status would be retained following the acquisition and that the interests of its staff would be protected.

For the Centre, which is facing a shortfall in indirect tax receipts and also certain elements of non-tax revenue, the government-owned explorer’s move to go by the valuation method for the acquisition could come in handy ahead of the Budget. The oil explorer could pay the government through a mix of internal resources and debt raised through bonds for which it will be holding roadshows.

The government had appointed JM Financial as the transaction adviser and Cyril Amarchand Mangaldas as the legal consultant for preparing an information memorandum on HPCL.