ONGC Seeks HPCL Stake At Market Price; Not Keen To Pay Premium For ‘fairly Valued’ Firm, Report Says

ONGC Seeks HPCL Stake At Market Price; Not Keen To Pay Premium For ‘fairly Valued’ Firm, Report Says

ONGC also seems to believe there is no case for paying a control premium for buying HPCL stake as the control for both the companies rests with the government itself.

ONGC seems to be pushing its own case so that it doesn’t have to pay an extensive premium to take over HPCL, with a company executive reportedly saying that the latter is already fairly valued. This comes after last week’s news reports that the government may ask ONGC to pay 40%-50% premium to buy stake in HPCL. “HPCL is already fairly valued by the market. It has a very high free float and is very actively traded. In such a scenario, the question of premium just doesn’t arise,” The Economic Times reported citing an unidentified senior executive of ONGC.

Earlier last week, ET Now reported that the Finance Ministry and the Oil Ministry are keen to have state-run Oil and Natural Gas Corp pay a 40%-50% premium over the current market price for buying a 51% equity stake in Hindustan Petroleum Corp from the government. A sale at that price would fetch the government Rs 50,000 crore.

However, with the latest news report, it seems that ONGC might not be game to the idea of shelling out so much money so easily. Further, the ONGC executive also told the newspaper that the question of paying a control premium does not arise, since the change in ownership of HPCL from the government to ONGC will not change its nature, as control for both the companies rests with the government.

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The Department of Disinvestment is learned to have already issued a Cabinet note on the proposed amalgamation of the state-run refiner Hindustan Petroleum Corp Ltd with the giant oil explorer Oil and Natural Gas Corp, in the government’s quest to create a huge energy PSU of the global scale. As is widely known, the government is planning to combine HPCL with ONGC by December this year by selling its 51.1% stake in the former to the latter.

Further, the government is also reportedly considering forming a Group of Ministers (GoM) to frame guidelines, price and timeframe for the share sale. Finance Minister Arun Jaitley, road minister Nitin Gadkari, oil minister Dharmendra Pradhan and power minister Piyush Goyal will likely be part of the proposed GoM.

A vertically integrated oil company would be better able to absorb the fluctuations in the global crude oil prices, as when the exploration unit will suffer from falling prices, the refining unit will benefit, and vice versa. Earlier in February, Finance Minister Arun Jaitley proposed setting up an integrated oil PSU (public sector undertaking) by merging companies with synergy in order to match the scale of the global oil giants.

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