Oil and Natural Gas Corporation (ONGC) will acquire the government’s entire 51.11 per cent equity share-holding in Hindustan Petroleum Corporation Limited (HPCL) for Rs 36,915 crores, the Finance Ministry announced on 20 January. According to the government, the acquisition will make the oil PSU India’s first vertically integrated ‘oil major’ company with presence across the entire value chain.
ONGC will pay the government Rs 473.97 per share “against cash”, a premium of over 10% of the 60-days weighted average of HPCL’s scrip. The oil-and-gas major said that the transaction will be closed before month-end.
In a series of tweets, the Finance Ministry said that the stake sale is in line with Prime Minister Narendra Modi’s February 2016 review in which he had underlined the need for an efficient management of the government’s investments in CPSEs.
“The Government accordingly expanded the approach from of disinvestment to investment and public asset management, [sic]” the Finance Ministry wrote on its official Twitter handle.
Pointing to an announcement made in Finance Minister Arun Jaitley’s Budget Speech of 2017-18, the Ministry said that it can “explore possibilities of consolidation, mergers and acquisitions within the CPSE space” as part of investment management strategy.
On 19 July 2017, the Union Cabinet had given its ‘in-principle’ approval to the proposal. Subsequently, an alternative mechanism was set up under the Finance Minister to “decide on the price, timing and the terms and conditions of the strategic sale”.
“The Alternative mechanism under the Chairmanship of Finance Minister in its meeting today approved the price bid of ONGC and the terms and conditions of the sale,” the government said today.
“The integrated entity will have advantage of having enhanced capacity to bear higher risks, & take higher investment decisions etc.
“In this process, ONGC has acquired significant mid-stream and downstream capacity and will attain economies of scale at various levels of operations,” the government said.
HPCL will continue to be a Central Public Sector Enterprise (CPSE). The ONGC has been India’s most profitable PSU for the last three years. In 2017, it earned a gross profit of Rs 41,008.20 crore.