Oil tanks stand at a refinery at Golaghat, India (Photographer: Adeel Halim/Bloomberg)

ONGC Set To Complete HPCL Stake Acquisition By End Of This Year

Oil and Natural Gas Corporation Ltd. expects to complete the acquisition of 51.11 percent stake in Hindustan Petroleum Corporation Ltd. by December end but is unlikely to pay a premium for it.

The Department of Divestment and ONGC engaged fund managers and transaction advisers to complete the deal as early as possible, ONGC Chairman DK Sarraf said at the company’s annual general meeting on Wednesday.

To fund the acquisition of HPCL shares, the company may consider selling its stake in Indian Oil Corporation Ltd. and GAIL India Ltd. or borrowing money from the market, Sarraf added. ONGC held 13.8 percent stake in IOC and 4.9 percent in GAIL as of June 30, according to BSE data.

On whether the buyout could be funded by selling stake in its refining arm Mangalore Refinery and Petrochemicals Ltd., the ONGC chairman said it is up to the boards of the respective companies to make that decision.

No Open Offer

Sarraf reiterated that the HPCL stake purchase will not trigger an open offer. Market regulator SEBI’s takeover regulations require that in matters of change in control or the acquisition of 25 percent or more voting right, the acquirer must give public shareholders of the target company the opportunity to exit by tendering their shares in an open offer.

The government last month tweaked the terms of HPCL stake sale to ONGC by including phrases that would help avoid the open offer. According to the Department of Investment and Public Asset Management’s amended the terms, “HPCL will continue to be a government company as per Section 2(45) of the Companies Act, 2013 and will continue to be controlled by the Government of India through ONGC under the administrative control of the Ministry of Petroleum and Natural Gas.”

The deal will not result in a reduction in ONGC’s upstream capital expenditure as the company plans to sell liquid assets, Sarraf said while responding to shareholder worries that the acquisition will lead to substantial fund outgo and therefore hit capex. The stake purchase will, in fact, increase profitability by protecting the upstream major from crude oil price fluctuations and reduce share price volatility, the ONGC chairman said.