ONGC may acquire HPCL in $6.6-b deal

Govt eyes creating integrated oil giant

ONGC may acquire HPCL in $6.6-b deal

 State-owned Oil and Natural Gas Corporation (ONGC) may acquire India’s third-biggest fuel retailer HPCL in an about Rs 44,000 crore ($6.6 billion) deal as part of the government’s plan to create an integrated oil giant.

Following up on Finance Minister Arun Jaitley’s Budget announcement of creating an integrated oil company, India’s biggest oil and gas producer ONGC may buy all of the government’s 51.11% stake in Hindustan Petroleum Corporation (HPCL).

This will have to be followed by an open offer to acquire additional 26% from other shareholders of HPCL.

“The government is looking at creating an integrated oil company and the idea is to merge an oil producer with a refiner,” a top source said.

There are only six major companies in the sector — ONGC and Oil India being the oil producers, Indian Oil Corporation (IOC), HPCL and Bharat Petroleum Corporation (BPCL) in the refinery business, and GAIL in mid-stream gas transportation business.

The rest such as ONGC Videsh, Chennai Petroleum Corporation (CPCL), Numaligarh Refinery and Mangalore Refinery (MRPL) are already subsidiaries of one of these six PSUs.

“So, the options are very limited. One option is to merge refiners HPCL and BPCL with ONGC and merge IOC and OIL. Now this would create two large vertically integrated oil companies. But this would also mean limiting the choice for consumers to just two companies for buying fuel,” he said.

The possible way out is to merge HPCL with ONGC while keeping BPCL separate. BPCL already has a flourishing upstream arm in Bharat PetroResources which can be strengthened further.

“This way consumers will continue to have three fuel retailers in IOC, ONGC-HPCL combine and BPCL,” he said.

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.

The source said ONGC buying HPCL will require two sets of Cabinet approval — one where the government approves sale of its all or part of its 51.11% stake to ONGC, and the other for allowing ONGC to spend the money on stake buy.

Considering Monday’s trading price of Rs 561, ONGC will have to pay the government Rs 29,128 crore for 51.11% stake. It will then have to buy another 26% from the open market for Rs 14,817 crore, taking the total acquisition price to about Rs 44,000 crore.

The merger will help the world’s third-largest oil consumer better compete with global majors in acquiring foreign assets.

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