Government Will Be Sole Gainer If ONGC Takes Over HPCL, Says CLSA
ONGC’s debt will only rise if it acquires the government’s stake in HPCL, says CLSA.
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The government will emerge as the only gainer if Oil and Natural Gas Corporation Ltd. buys 51 percent stake in Hindustan Petroleum Corporation Ltd., said brokerage house CLSA.
The country's largest oil explorer will have to shell out close to Rs 28,300 crore to acquire the government's stake in HPCL, as per the closing price of Rs 545 on Monday. ONGC had a cash of Rs 16,648 crore, and a total debt of Rs 55,682 crore as of March 31, 2017.
Buying the government's stake will only add debt, said the international brokerage house.
The transaction will have no impact on operations of HPCL, but ONGC will see a notable increase in debt for purchase of the government’s stake.CLSA’s Sector Outlook On Oil And Gas
The government is planning to sell its stake in HPCL to the country’s biggest explorer, Bloomberg had reported citing people familiar with the matter. The government plans to create an energy giant which could compete with international rivals, Finance Minister Arun Jaitley had said in his Budget speech. It would be possible through mergers and consolidation, he had said.
Another Option
ONGC could also sell its stake in Indian Oil Corporation Ltd. (IOCL) to fund the HPCL buyout, according to CLSA. The upstream company holds 13.8 percent stake in IOC, which is also the country’s largest oil marketing company. The stake sale could fund the entire buyout, based on Monday’s closing price of Rs 423.7. The sale will impact IOCL’s share price though, added the brokerage house.
If IOCL’s stake is sold, it will limit any incremental value leakage and minimise net negative value impact on ONGC.CLSA’s Sector Outlook On Oil And Gas
More May Follow
The ONGC-HPCL deal may just be the first of more to come, said CLSA which expects the government to monetise other cross-holdings in the energy space.
IOCL could be the next big company which may be asked to acquire the smaller Oil India under this plan of achieving integration.CLSA’s Sector Outlook On Oil And Gas
If ONGC does acquire HPCL, it will also help the government meet more than a third of its divestment target of Rs 72,500 crore (at current market prices) for the ongoing financial year while retaining control over the oil companies.
ONGC will become the country’s third largest refiner after IOC and Reliance Industries Ltd. The upstream company owns Mangalore Refineries & Petrochemicals Ltd. which has an installed capacity of 15 million tonnes a year.