ONGC said in a statement on Saturday that its board had considered the proposal on Friday and a share purchase agreement with the President for acquiring the 778 million equity shares of HPCL (51.11 per cent) was signed.
“Requisite approval from the shareholders of ONGC for the related-party transaction will be sought by ONGC after the execution of the share-purchase agreement. The acquisition has been made on an arm’s length basis. The transaction is exempt from the requirement to make an open offer,” the statement said.
A top ONGC source said, “We haven’t yet finalised we will be financing the deal. We have a good cash balance. Approvals from shareholders are in place to borrow up to Rs 250 billion. In addition to this, the option of selling stakes in GAIL (India) and Indian Oil are also available. We may go for a mix of these options.” ONGC currently holds 13.77 per cent stake in IOC and 4.87 per cent in GAIL.
The Cabinet Committee on Economic Affairs had approved in principle the deal on July 19 and the alternate mechanism set up for the finalising the price, terms and conditions of the transaction accorded its final approval on January 20 this year. The company said no other regulatory approval was required for the transaction.
“The acquisition has been undertaken in furtherance of the government’s objective to combine the various central public sector enterprises to give them capacity to bear higher risks, avail economies of scale, take higher investment decisions and create more value for the stakeholders and create an ‘oil major’ which will be able to match the performance of international and domestic private sector oil and gas companies,” it said.
ONGC expects that as an integrated oil conglomerate, its performance will be less affected by the volatility of crude oil prices due to the diversification of its cash flows to midstream and downstream presence. On Friday, ONGC's share had closed at Rs 193.60 on the BSE, down 0.23 per cent, while HPCL’s shares closed at Rs 416.55, up 1.34 per cent.
SBI Capital Markets and Citi Global acted as the transaction advisers and Shardul Amarchand Mangaldas acted as the legal adviser to ONGC. The government had appointed JM Financial as the transaction adviser and Cyril Amarchand Mangaldas as the legal consultant last year.
Experts are of the opinion that this acquisition will help ONGC.
“This is the best in-organic growth for ONGC. In one stroke it is becoming a fully integrated company. At 10 per cent premium to the current market price, this is a fair deal for ONGC and presence in upstream and downstream will help to address the volatilities in market,” said R S Sharma, former ONGC chairman and managing director, and the current chairman of FICCI Hydrocarbon Committee.