Will Eventually Look At HPCL-MRPL Merger, ONGC Chairman Says
After the completion of the buyout, HPCL will be merged with MRPL, ONGC Chairman DK Sarraf said.
Oil and Natural Gas Corporation Ltd., the country’s biggest oil explorer, will buy the government’s entire stake in refiner Hindustan Petroleum Corporation Ltd. in an all-cash deal.
The Union Cabinet on Wednesday gave an in-principle nod to sell its 51.11 percent stake in HPCL to ONGC. After the completion of the buyout, HPCL will be merged with MRPL, ONGC Chairman DK Sarraf told BloombergQuint over the phone. "There would be synergies between HPCL and MRPL in consolidation of the two,” he added.
Here are edited excerpts from the conversation.
Can you give us some clarity on whether the acquisition of HPCL will be done via cash or stock of ONGC?
It won’t be done via stock of ONGC because we would need to pay the Government in India in cash.
And how much cash will be required for acquisition? Will it be based on current market price or market price at the time of the decision?
It would be the number of shares multiplied by the price decided between the seller and buyer, which is expected to be the current market price. It is for ONGC and the seller to discuss and reach a price.
Will it be at a premium to the current market price?
I don’t think so, but it would have to be discussed between seller and buyer.
One big question which has been asked is about the open offer. Since you will acquire more than 25 percent in HPCL, will it trigger an open offer?
My understanding of the law is that it cannot.
So there will not be any exit route which will be given to the minority shareholders of HPCL?
It’s not required.
Will you funding the acquisition through internal cash accruals or will you be raising debt?
We have made some funding plans which will not be shared at this moment.
Will it have a debt component to it or will you increase the debt component of ONGC for this acquisition?
It can have a debt component which can range from Rs 0-28,000 crore.
Can you elaborate on what kind of synergy there is for this transaction?
The integrated companies are much more stable and stronger as compared to the standalone companies. ONGC is an upstream company and has some refining components. Going forward, if and when this transaction is completed, ONGC would become an economy integrated oil and gas company. It will have a component of upstream – major portion – and downstream which is refining, petrochemical marketing, everything into it, it would become a stronger company. Especially in today’s environment when crude prices are down and refining margins, petrochemical and marketing margins are up. It would become a stronger company. There would be merit in integration of MRPL and HPCL. Such decisions would need to be taken, if at all, by the boards of those two companies. There would be synergies between HPCL and MRPL.
Both HPCL and MRPL are listed and any transaction between them would require an arm’s length transaction?
Yes, it should be a long-drawn process and we would comply by the laws of the company on the same if at all it happens. Because that call would need to be taken by the board of directors of the two companies.
When you say integration, it eventually means a merger between HPCL and MRPL?
Yes but that call would need to be taken by the boards of the two companies.
If you look at the structure of ONGC now, you as the holding company will have HPCL and MRPL as your subsidiaries, and then you have associates such as Petronet, GAIL and Oil India where you have some stake. Will that bring in some holding company discount to ONGC?
I don’t think that holding company discount concept applies - whether the assets are lying in one single entity or in different entities or assets, I don’t think we can talk of any discounts.