In what could set off a spate of mergers and acquisitions (M&As) in the oil and energy industry, especially among the state-owned entities, the Centre approved in-principle to sell its stake in Hindustan Petroleum Corporation Ltd. (HPCL) to Oil and Natural Gas Commission (ONGC), according to a report by news agency PTI on Wednesday.
The deal envisages the government selling its 51.1 percent stake in HPCL for an amount estimated between Rs 26,000 to 30,000 crore, the agency quoted a source as saying.
Impact on share prices
Responding to the news, share prices of the two public sector companies showed a divergent trend in early trade on Thursday; at around 10.25 am, ONGC was trading 2.27 percent higher at Rs 167, HPCL shares were down 2.86 percent to Rs 373 on the Bombay Stock Exchange (BSE). The BSE Energy index was up 0.38 percent even as the benchmark index (Sensex) was trading flat at 31,941.
Fate of HPCL, post acquisition
DK Sarraf, Chairman of ONGC, told business news channel CNBC-TV18 that HPCL will continue to exist as a listed entity and said that the deal will be completed by the end of the current financial year with benefits for the company (ONGC). "I see this as a big, big positive for the company, its operations and the future outlook of the company in terms of sustainability with respect to crude oil prices," Sarraf told the channel.
There won't be an open offer by ONGC and a detailed statement on the deal is expected to be made by Dharmendra Pradhan, minister of state for petroleum and natural gas, in the Parliament on Thursday, according to the PTI.
Deals before the final deal
Prior to the eventual acquisition, HPCL will buy ONGC's 71.63 percent stake in Mangalore Refinery and Petrochemicals Ltd (MRPL), an entity in which it holds 16.96 percent. Based on Wednesday's closing price of MRPL shares (Rs 130.75), HPCL would have to shell out Rs 16,414 crore to ONGC, according to the news agency's Wednesday report.
Sarraf also clarified that ONGC need not make any open offer to minority shareholders of HPCL since the transaction involves merely transferring ownership of the government from one state-owned company to another.
Trigger for more M&As
The latest move, also the first of its kind, could pave the way for similar consolidation in the oil and energy sector, dominated by many public sector units such as Indian Oil Corporation, Bharat Petroleum Corporation Ltd., GAIL (India) and Oil India Ltd., apart from ONGC and HPCL. Private sector players in the oil and energy space include Reliance Industries and Essar Oil.
Essar Oil has a refinery in Gujarat with a capacity to process 20 million metric tonnes per annum (MMTPA), or 405,000 barrels per day, in addition to 3,600 branded retail oil fuel outlets, apart from 2,700 more that are "in various stages of commissioning", according to the company's website.
Reliance Industries, owned by Mukesh Ambani, has its refinery in Jamnagar, Gujarat, with an installed capacity to process 1.24 million barrels per stream day.
Besides, it also has another refinery in the Special Economic Zone in Jamnagar, with a capacity to process 580,000 barrels of crude per day, according to its website.
