After some minor hiccups on the issue of valuation, public sector exploration giant ONGC has got the consent for acquiring controlling stake in fellow PSU Hindustan Petroleum Corporation Ltd (HPCL).
The transaction, which will be concluded in the next few days, will be for ₹36,915 crore.
According to a statement issued by ONGC, it has entered into a share purchase agreement with the President of India for acquiring the 778,845,375 equity shares of HPCL (representing 51.11 per cent of HPCL) on January 20, 2018. The transaction is expected to be completed before January end, said ONGC.
This acquisition is in line with the government’s objective to combine the Central Public Sector Enterprises to give them the capacity to bear higher risks and avail themselves of economies of scale.
A statement from the Ministry of Finance said, “HPCL will continue to be a Central Public Sector Enterprise.”
The government’s decision to create the ‘oil major’ was announced during the Finance Minister’s 2017-18 Budget speech.
The ONGC Board on Friday had considered the proposal and approved the acquisition of shares at a cash purchase consideration of ₹473.97 per share with a total acquisition cost of ₹36,915 crore, the statement added. Shares of HPCL had closed at ₹416.55 on Friday.
The Cabinet in July 2017 had given an ‘in-principle’ approval to the acquisition proposal and decided to set up an Alternative Mechanism under the Finance Minister to decide on the price, timing and the terms and conditions of the strategic sale.
ONGC hopes that as an integrated oil conglomerate, its performance will be less affected by the volatility of crude prices due to diversification of its cash flows to midstream and downstream presence through HPCL.
SEBI exemption SEBI has granted an exemption from the application of Regulation 23 of the Listing Obligations and Disclosures Requirements to ONGC for this transaction on November 30, 2017.
Approval from the shareholders of ONGC is required for the related party transaction after the execution of the share purchase agreement in accordance with provisions of Section 188(3) of the Companies Act.
This is because the government through the President of India is the promoter of ONGC and HPCL.
The acquisition has been made on an arm’s length basis. The transaction is exempt from the requirement to make an open offer under the provisions of Regulation 10(1)(a)(iii) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011, ONGC added.
Asked if the board of HPCL will undergo a change after the transaction is concluded, a senior HPCL executive said, “it will be up to the government to decide. Meanwhile it is business as usual in the company.”