The government plans to sell its 51.11 per cent stake in HPCL to ONGC. How much is this stake worth – about Rs 30,000 crore or a third lesser, about Rs 20,000 crore? There was confusion about this last week after the Cabinet gave its go-ahead for the deal on July 19; the number varied across news reports.

Going by the HPCL stock’s full market capitalisation of about Rs 58,500 crore on July 19, the value of the government’s 51.11 per cent came to nearly Rs 30,000 crore. But if one went by the number of shares the government held in HPCL (519,230,250) as disclosed in the June 30, 2017 shareholding pattern and multiplied it by the stock price (Rs 384) on July 19, the government’s stake was worth about Rs 20,000 crore.

Bonus issue

The difference is because of a 1:2 bonus issue declared by HPCL that was effective from July 11. With one share issued as bonus for every two held, the government got an additional 259,615,125 shares, taking the total number of shares it held in HPCL to 778,845,375. But this is not reflected in the shareholding pattern as of June 30, 2017. The increased number of shares multiplied by the stock price on July 19 (Rs 384) comes to about Rs 30,000 crore, the same as the value arrived at by multiplying the total market capitalisation (Rs 58,500 crore) and the government’s stake of 51.11 per cent. Ergo, the government’s stake in HPCL is worth about Rs 30,000 crore.

Savvy move

The bonus issue reflects the government’s savviness in the run-up to the deal. This is the second bonus issue by HPCL in less than a year. Earlier, in September 2016, the company had declared a 2:1 bonus, that is two shares for every 1 held. So, along with the recent bonus issue, a shareholder who had 1 share in HPCL on September 12, 2016 will now have 4.5 shares in the company. Prior to this, the company had declared a bonus issue way back in 1999.

Bonus shares decisions are usually driven by controlling shareholders, in this case the government. A bonus issue is typically cheered by the market and shares rally, though it is effectively only an accounting adjustment – capitalisation of reserves, or shifting of profits from reserves to share capital. The company’s confidence in servicing a higher capital base is something markets generally like.

The recent rally in the stock of Reliance Industries after the 1:1 bonus announcement last week is a case in point. The HPCL stock, on a roll, more than trebling over the past three years, too seems to have got a shot in the arm from the bonus announcements. After the share went ex-bonus on July 11, it has rallied about 8 per cent. Pre-bonus in September 2016, one HPCL share was trading at Rs 1,200. Each share, after the bonus issues, is now 4.5 shares and at the current price of Rs 370, the total value is Rs 1,665 – that’s a gain of nearly 40 per cent in about 9 months. While it’s hard to ascertain how much of these gains are attributable to the bonus issues, it’s fair to say that they would added to the already positive sentiment in the stock. While the final price at which the stake sale happens remains to be seen, it’s safe to surmise that the government has cut itself a neat, timely deal.

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