Cabinet go-ahead for ONGC to buy 51% stake in HPCL

A technician is pictured inside a desalter plant of Oil and Natural Gas Corp (ONGC) on the outskirts of Ahmedabad File Photo: Reuters
The Union Cabinet, on Wednesday, gave in-principle approval for state-owned upstream giant Oil and Natural Gas Corp(ONGC) to buy the government’s 51 per cent stake in Hindustan Petroleum. Such a takeover will make Hindustan Petroleum(HPCL) a subsidiary of ONGC, and it will indirectly remain a public-sector undertaking through the centre’s stake in ONGC.

Senior government sources told Business Standard that ONGC, HPCL and government will now decide how to proceed. Once the process of ONGC buying the centre’s stake in HPCL is decided upon, the cabinet will give a final approval for the sale to actually take place, said an official.

“HPCL will remain a separate entity as a subsidiary of ONGC. It also makes operational sense for a merger of HPCL and MRPL, another subsidiary of ONGC, to take place,” the official said.

As per Wednesday’s closing price, a 51.11 per cent stake in HPCL is worth nearly Rs 30,000 crore. The official said that a decision on whether ONGC needs to pay a premium over the traded price of HPCL shares will be taken by the company.

The government has planned a number of mergers and acquisitions in the PSU space this fiscal. In his 2017-18 Union Budget speech, Finance Minister Arun Jaitley had said that the government sees “opportunities to strengthen” PSUs through consolidation, mergers and acquisitions. He gave the example of the oil and gas sector. “We propose to create an integrated public sector ‘oil major’ which will be able to match the performance of international and domestic private sector oil and gas companies.”

The total disinvestment target for FY2017-18 is Rs 72,500 crore. Of this, Rs 46,500 crore is expected to come in from minority stake sales, buybacks, mergers, public listings and through the CPSE ETF route. Rs 15,000 crore is budgeted to come in from strategic sale in PSUs and in SUUTI. The remaining Rs 11,000 crore is expected to come from the earlier-announced plans to list five state-owned general insurance companies.

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