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DAVOS, Switzerland - Energy is a slick business. India’s Oil and Natural Gas Corp (ONGC) agreed on Jan. 20 to buy the government’s 51 percent stake in state-refiner Hindustan Petroleum Corp Ltd (HPCL) for $5.8 billion in an all-cash deal. The logic of the country’s biggest explorer buying a refiner is flawed but the deal will help New Delhi meet targets for asset disposals and burnish Prime Minister Narendra Modi’s economic credentials. The buyer will pay a premium of almost 14 percent to the target’s trading price on Friday and is exempt from making an offer for the entire company. It’s a tie-up that was flagged almost a year ago. Finance Minister Arun Jaitley said back then that the government was keen to create national champions which would have scale and the capacity to bear higher risks, starting in the oil sector.
ONGC says a deal that combines upstream and downstream operations will provide some insulation against volatile oil prices. However, refiners typically pass on the benefits of lower input prices to consumers and analysts at financial services firm IIFL reckon there are few strategic benefits for the buyer and no material synergies from the union.
The seller is the real winner. The proceeds from the deal will help New Delhi meet a target for asset sales which it usually misses, and which is fixed at 725 billion rupees ($11.4 billion) for the current fiscal year. That will help temper concern about the extent to which India will overshoot its 3.2 percent of GDP target for this fiscal year. Such worries have grown because a new nationwide goods and services tax is generating less money than expected.
Minority shareholders of ONGC will get to vote on a deal whose benefits are so unequally shared. But their ranks include state-owned Life Insurance Corp of India and other government-backed companies, which together own almost 20 percent of the explorer. The tie-up is therefore likely to be waived without any problems, greasing the way for New Delhi to meet its broader economic objectives.
CONTEXT NEWS
- India’s biggest explorer Oil and Natural Gas Corp (ONGC) agreed on Jan. 20 to buy the government’s majority stake in state-refiner Hindustan Petroleum Corp Ltd (HPCL) for 369 billion rupees ($5.78 billion).
ONGC will pay 473.97 rupees per share in cash for HPCL, equivalent to a 14 percent premium to the closing price for the shares on Friday. ONGC is exempt from making a full open offer for HPCL.
- The deal is part of the government’s objective to combine various public sector enterprises “to give them the capacity to bear higher risks” and create more value for shareholders, ONGC said in a statement.
- ONGC and HPCL together jointly own most of the separately-listed Mangalore Refinery and Petrochemicals (MRPL), which has a $3.5 billion market cap. On Jan. 21, an ONGC executive said that it may look at merging MRPL and HPCL in the future but had no immediate plans to do so.
- Asia’s third-largest economy had aimed to raise 725 billion rupees during the current fiscal year through the sale of government stakes in various companies.
(Editing by Swaha Pattanaik, Katrina Hamlin and Bob Cervi)
© Reuters News 2018
ONGC says a deal that combines upstream and downstream operations will provide some insulation against volatile oil prices. However, refiners typically pass on the benefits of lower input prices to consumers and analysts at financial services firm IIFL reckon there are few strategic benefits for the buyer and no material synergies from the union.
The seller is the real winner. The proceeds from the deal will help New Delhi meet a target for asset sales which it usually misses, and which is fixed at 725 billion rupees ($11.4 billion) for the current fiscal year. That will help temper concern about the extent to which India will overshoot its 3.2 percent of GDP target for this fiscal year. Such worries have grown because a new nationwide goods and services tax is generating less money than expected.
Minority shareholders of ONGC will get to vote on a deal whose benefits are so unequally shared. But their ranks include state-owned Life Insurance Corp of India and other government-backed companies, which together own almost 20 percent of the explorer. The tie-up is therefore likely to be waived without any problems, greasing the way for New Delhi to meet its broader economic objectives.
CONTEXT NEWS
- India’s biggest explorer Oil and Natural Gas Corp (ONGC) agreed on Jan. 20 to buy the government’s majority stake in state-refiner Hindustan Petroleum Corp Ltd (HPCL) for 369 billion rupees ($5.78 billion).
ONGC will pay 473.97 rupees per share in cash for HPCL, equivalent to a 14 percent premium to the closing price for the shares on Friday. ONGC is exempt from making a full open offer for HPCL.
- The deal is part of the government’s objective to combine various public sector enterprises “to give them the capacity to bear higher risks” and create more value for shareholders, ONGC said in a statement.
- ONGC and HPCL together jointly own most of the separately-listed Mangalore Refinery and Petrochemicals (MRPL), which has a $3.5 billion market cap. On Jan. 21, an ONGC executive said that it may look at merging MRPL and HPCL in the future but had no immediate plans to do so.
- Asia’s third-largest economy had aimed to raise 725 billion rupees during the current fiscal year through the sale of government stakes in various companies.
(Editing by Swaha Pattanaik, Katrina Hamlin and Bob Cervi)
© Reuters News 2018
