The government is planning to sell its entire 51.11 percent stake in the HPCL to ONGC, says a media report.
The transaction would also influence the status...
of Mangalore Refinery and Petrochemical (MRPL), jointly promoted by ONGC and HPCL, an ONGC executive told a daily.
"After ONGC takes over HPCL, MRPL will be managed by HPCL. There is no logic for ONGC to have two companies in the same segment," said the ONGC executive. "HPCL is rightly placed to handle MRPL since both operate refineries." ONGC and HPCL own 71.63 percent and 16.96 percent, respectively in MRPL, while the balance 11.42 percent is owned by the public. HPCL has in recent days pitched for taking control of MRPL. The terms of the ONGC-HPCL deal are still being finalised but speculations abound, including on how much premium ONGC may have to pay the government for HPCL shares.
“HPCL is already fairly valued by the market. It has a very high free float and is very actively traded. In such a scenario, the question of premium just doesn't arise," the official said. "Moreover, the point of control premium is not valid since the control of both companies would rest with the government after the transaction, as it does now," he said. Of the public shareholding of 48.89 percent in HPCL, state-owned Life Insurance Corp owns just about 2% while the balance stake is owned by numerous foreign and domestic institutions and retail investors.
He said the sale of 10 percent stake in Indian Oil Corp in March 2014, when the government sold shares at 10 percent discount to the prevailing market price. Under its divestment programme, the government had then sold 5 percent stake each to ONGC and Oil India.
The speculation about HPCL shares likely to be sold at a premium has sent stock up 16 percent in ten days. The stock is up 63 percent in a year.
Paying a premium can drain away ONGC's resources already needed for its planned capex of Rs 30,000 crore in 2017-18. The company has just about $2.5 billion of cash reserve, half of which would go into paying for the acquisition of KG Basin asset of GSPC. Acquisition of government's 51.11 percent stake in HPCL would require ONGC to pay $4.7 billion at current market prices.