Published: Tue, January 23, 2018
Money | By Armando Alvarado

India's $6bln oil deal is slick for Narendra Modi

India's $6bln oil deal is slick for Narendra Modi

Less than a fortnight before Budget 2018, the government, on the back foot due to shaky GST collections, brought out its big gun - the sale of its 51.11 per cent stake in HPCL to ONGC for a cool ₹36,915 crore, all cash.

HPCL shares, however, fell as much as 4.3 percent as the premium paid was only about 14 percent higher than Friday's closing price, smaller than expected.

The company, which expects to close the deal by the end of January, may later consider merging its oil refining subsidiary Mangalore Refinery and Petrochemicals Ltd. with HPCL, Shanker said. Two state-owned insurance companies, GIC and New India Assurance were listed on stock exchanges this fiscal.

In the Union Budget presented on 1 February previous year, finance minister Arun Jaitley had set the target of disinvestment in public sector units at Rs72,500 crore.

Throwing more light on the deal and funding for the HPCL acquisition, Shashi Shanker, CMD, ONGC said part of the funding will be done through internal accruals. The HPCL transaction will take it to more than Rs. 89,000 crore.

In fact, Prime Minister Narendra Modi had underlined the need of efficient management of government investments in CPSEs during the review in February 2016.

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The Government accordingly expanded the approach from of disinvestment to investment and public asset management.

"Accordingly, as part of investment management strategy, the Government of India made a decision to explore possibilities of consolidation, mergers and acquisitions within CPSE space". ONGC will also gain access to marketing network of HPCL which could be synergistically utilised for projects such as MRPL, OPaL.

In July 2017, the Cabinet Committee on Economic Affairs had given the in-principle approval and the alternate mechanism set up for the finalising the price, terms and conditions of the transaction.

"In this process, ONGC has acquired significant mid-stream and downstream capacity and will attain economies of scale at various levels of operations", it said. Further, he described the HPCL acquisition as a "perfect fit" for ONGC as it will protect India's largest explorer against the volatility in crude oil prices.

It owns the biggest Lube refinery in India and the second largest cross country product pipeline network of about 3,500 km.

The company will use a mix of debt, cash reserves and proceeds from a planned sale of stakes in Indian Oil and GAIL to fund its acquisition.

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