Cabinet gives in-principle nod to ONGC-HPCL merger

Modi's Giant Oil PSU Plan Takes Shape as Cabinet Approves ONGC HPCL Merger

In a move to build a vertically-integrated mega oil and gas company, the Union Cabinet, headed by Prime Minister Narendra Modi on Wednesday, gave an in-principle nod to the merger of state-owned Oil and Natural Gas Corp (ONGC) and Hindustan Petroleum Corp Ltd (HPCL). As per Wednesday's closing price, a 51.11 per cent stake in HPCL is worth around Rs 30,000 crore.

Quoting Oil Minister Dharmendra Pradhan, a Reuters report said, "ONGC has forwarded a proposal to acquire HPCL". HPCL will continue as a listed subsidiary of its new parent, which will become a truly integrated entity that will be better equipped to tide over the ebb and flow of prices in the oil production and refining-marketing businesses.

However, the final deal can't be reached immediately as the handover of HPCL to ONGC may take one year even after the government securing the cabinet green signal.

CLSA expects ONGC to sell 13.8 per cent stake in IOCBSE 0.86 % in the open market to fund the deal. The deal will be completed within a year, he said. He also said that they have already chalked out a funding plan and that the ONGC-MRPL deal would be done before the merger. HPCL is a refining company while ONGC is an oil explorer. Sarraf said there was a strong case for merging MRPL, which ONGC had acquired in March 2003 from AV Birla Group, with HPCL but no modalities have been worked out yet. He gave the example of the oil and gas sector.




"ONGC parentage could mean interference (from ONGC or government), highly probable participation in upstream and, more importantly, dilution of a high-performance culture", Ambit's analysts Ritesh Gupta and Gaurav Khandelwal wrote in a note, according to an ET report published Tuesday.

"We propose to create an integrated public sector "oil major" which will be able to match the performance of global and domestic private sector oil and gas companies".

However, during government stake sale, SEBI laws allow avoidance of open offer if ultimate ownership remains same and premium paid is less than 25 per cent.

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