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State-owned Oil and Natural Gas Corp (ONGC) has got approval from the government for selling its stake in IOC and GAIL to help fund the ₹36,915 crore acquisition of HPCL.
ONGC holds 13.77 per cent stake in nation’s biggest refiner Indian Oil Corp (IOC), which at today’s trading price is worth over ₹26,200 crore. It also holds 4.86 per cent stake in gas utility GAIL India Ltd, which is worth over ₹3,847 crore.
Top sources with direct knowledge of the issue said the government gave ONGC nod to sell its shareholding in IOC and GAIL earlier this month but the company is waiting for the right price to offload the shares.
For the moment, ONGC is funding the ₹36,915-crore acquisition of government’s 51.11 per cent stake in oil refining and marketing firm Hindustan Petroleum Corp Ltd (HPCL) from the about ₹12,000 crore cash it has and short-term borrowing.
Sources said ONGC is a zero-debt company and wants to retain that status. The short-term loan it is availing have provision to pre-pay without any penalty.
It plans to pre-pay the one-year tenure loan it is taking for HPCL buy by selling IOC and GAIL shares in due course, they said.
Sources said ONGC had held talks with Life Insurance Corp of India (LIC) for selling IOC and GAIL shares but the state-owned insurer insisted on buying them at 10 per cent discount to the prevailing price.
So, ONGC has decided to offload the shares in open market.
Integrated oil company
ONGC acquiring HPCL would create India’s first integrated oil company. This would be ONGC’s biggest acquisition and second buyout this fiscal after its ₹ 7,738 crore acquisition of 80 per cent stake in Gujarat State Petroleum Corp’s KG basin gas block.
ONGC Chairman and Managing Director Shashi Shanker had on Sunday stated that the company’s board has approved raising of the borrowing limit from ₹ 25,000 crore to ₹ 35,000 crore.
This will be the company’s first ever debt.
“We will use our (₹ 12,000-13,000 crore) cash first and then the liquid assets and debt will be last,” Shanker had said.
“This order can change, because we won’t sell the liquid assets in distress. Also, we have offers for over ₹50,000 crore debt at very competitive rates, both foreign currency and local.”
Shanker had said the company paid less than the acquisition price recommended by the company’s valuation adviser, EY.
He, however, refused to share details.
HPCL share valuation
The ₹473.97 per share ONGC is paying to the government is 14 per cent higher than Friday’s closing price of HPCL and over 10 per cent of the 60-day weighted average of the HPCL scrip.
Sources said while the government was seeking as much as ₹69,000 crore for selling controlling stake in HPCL, EY had put HPCL’s valuation at ₹475 a share plus a premium for getting the controlling stake. The outside advice the company took from Citi put the price at ₹500 per share.
The stake sale will help the government cross its sell-off target for the first time and would help stick to the fiscal deficit target of 3.2 per cent of GDP.
The government had set a target of ₹72,500 crore from disinvestment proceeds this fiscal. Before the ONGC-HPCL deal, it had collected ₹54,337.60 crore.
HPCL will add 23.8 million tonnes of annual oil refining capacity to ONGC’s portfolio, making it the third-largest refiner in the country after IOC and Reliance Industries.
ONGC already is majority owner of MRPL, which has a 15-million tonne refinery.
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