Cabinet may decide on HPCL stake sale to ONGC this month

The Department of Investment and Public Asset Management (DIPAM) in the Ministry of Finance is moving a note for consideration of the Cabinet for divesting government's entire 51.11 per cent shareholding in India's third-biggest fuel retailer HPCL to oil producer ONGC.

The Cabinet may take up the proposal this month, a source in the government said. "It may come before the Cabinet as early as 10 to 15 days," he said.

After the Cabinet nod, the government will move to appoint valuation and transaction advisors while ONGC too may decide to hire merchant bankers to arrive at the valuation of government shareholding.

Following up on Finance Minister Arun Jaitley's Budget announcement of creating an integrated oil company, ONGC evaluated options of acquiring either HPCL or Bharat Petroleum Corp Ltd (BPCL) - the two downstream oil refining and fuel marketing companies.

While acquiring either one of them made a lot of business sense, ONGC found the nation's second-biggest fuel retailer BPCL too expensive.

It then conveyed its choice to the parent oil ministry, which relayed it to DIPAM.

After few rounds of inter-ministerial consultations, DIPAM is now approaching the Cabinet for a nod for the transaction, the source said, adding the transaction is likely to be completed within this fiscal year.

ONGC has a cash reserve of Rs 13,014 crore and to fund the government stake acquisition in HPCL, it will have to borrow at least Rs 10,000 crore, the source said.

BPCL has a market cap of Rs 95,447.12 crore and buying government's 54.93 per cent would alone have entailed an outgo of Rs 52,430 crore.

HPCL, on the other hand, has a market cap of Rs 51,764.25 and buying government's entire 51.11 per cent stake would entail an outgo of Rs 26,450 crore. Another Rs 13,450 crore or so would be required in case open offer for an additional 26 per cent has to be made.

Sources said while initially, the government was looking at creating an integrated oil company through the merger of an oil producer with a refiner, the idea was dropped for the fear of not repeating the Air India-Indian Airlines kind of merger.

Similar differences in work culture and ethos prevail in upstream and downstream firms and so the exercise under consideration now is to only help government mop up resources and HPCL would become a mere subsidiary of ONGC.

ONGC already has a refining subsidiary in Mangalore Refinery and Petrochemicals Ltd (MPRL).

There are only six major companies in the oil sector - ONGC and Oil India Ltd being the oil producers, Indian Oil Corp (IOC), HPCL and BPCL in refinery business and GAIL in the midstream gas transportation business.