ONGC Repays A Third Of Loan Taken To Buy HPCL
State-owned Oil and Natural Gas Corporation of India Ltd. will not sell its stake in Indian Oil Corporation Ltd. and GAIL (India) Ltd. as it has used internal resources to repay close to a third of the Rs 24,881-crore loan it had taken to buy Hindustan Petroleum Corporation Ltd., people with direct knowledge of the matter said.
ONGC had in January received the government’s approval to sell its 13.77 percent stake in Indian Oil Corp and a 4.86 percent state in gas utility GAIL (India) to help fund the Rs 36,915-crore acquisition of HPCL.
“Indian Oil Corp shares were trading at around Rs 195 in January and it is now at Rs 159 (Friday’s closing). It doesn’t make sense to sell the shares at such a big loss,” a person with direct knowledge of the matter said.
At Friday’s closing price of Rs 159.60, ONGC’s shareholding in Indian Oil Corp would get it Rs 21,343 crore against Rs 26,200 crore worth in January. At Friday’s closing price of Rs 387.25, ONGC’s shareholding in GAIL (India) is worth Rs 4,244 crore,” the person said.
“We are generating enough resources internally, thanks to a rebound in oil prices. We used these to bring down the borrowing for HPCL acquisition to Rs 20,000-21,000 crore in the first quarter and are repaying another Rs 3,000-4,000 crore in the current quarter. Effectively, we have repaid Rs 7,800 crore,” he said.
ONGC had borrowed Rs 24,881 crore on a short-term loan to fund buying the government’s 51.11 percent stake in HPCL. The remaining came from its cash reserves.
The person said the pace of repayment may slow down in the third and fourth quarters owing to outgo on taxes and dividend as also the fact that capital spending would peak by then. Initially, ONGC considered selling Indian Oil Corp and GAIL (India) stake to fund the acquisition but it has never found the right price to offload the shares, he said.
The short-term loan it availed had a provision to pre-pay without any penalty.
Sources said ONGC had held talks with Life Insurance Corp of India for selling Indian Oil Corp and GAIL (India) shares but the state-owned insurer insisted on buying them at 10 percent discount to the prevailing price. So, ONGC has decided against the share sale.
ONGC’s purchase of HPCL created India’s first integrated oil company. This was ONGC’s biggest acquisition and second buyout of 2017-18 after its Rs 7,738-crore acquisition of an 80 percent stake in Gujarat State Petroleum Corp’s KG basin gas block.
HPCL added 23.8 million tonnes of annual oil refining capacity to ONGC’s portfolio, making it the third-largest refiner in the country after Indian Oil Corp and Reliance Industries Ltd. ONGC is the majority owner of Mangalore Refinery and Petrochemicals Ltd., which has a 15-million-tonne refinery.