New Delhi/Mumbai: India is considering a plan to sell its ownership in Hindustan Petroleum Corp. to the nation’s biggest explorer at a premium of not more than 9% of the company’s six-month average share price as it seeks to reach a final agreement as early as 31 January, according to people with knowledge of the matter.
Capping the premium will prevent opposition from minority shareholders of HPCL, since the government doesn’t plan to open the offer to the public, and also not burden state-run acquirer Oil & Natural Gas Corp., the people said, asking not to be identified because the information isn’t public. An agreement is near completion with the parties working to endorse the valuation, they said.
At the proposed valuation, the sale will help Prime Minister Narendra Modi’s administration raise as much as Rs36,600 crore ($5.7 billion), that is more than half of its annual asset sale target. The government plans to complete the transaction before 31 March to achieve the $11 billion asset sales target for the current financial year. The stake sale is crucial for narrowing its budget gap that has climbed to Rs6.12 trillion during eight months to November, or 112% of the target.
The HPCL stake sale is unlikely to trigger an open offer as the government’s holding is being transferred to another state-run firm. Under India’s takeover code, if a company acquires more than 25% of another listed entity, it has to make an open offer to buy at least 26% more.
Calls made to finance ministry spokesman D.S. Malik went unanswered. ONGC spokesman declined to comment while an email sent to HPCL spokesman remained unanswered.
ONGC will tap the debt market for the first time to fund the acquisition as it is running low on funds after boosting spending on oil and gas exploration amid low output prices. The explorer has sent request for proposals to banks to raise Rs25,000 crore in loans.
ONGC’s board approved the deal on 22 August following the cabinet’s decision to sell the HPCL stake to the explorer.
The acquisition is part of a plan first outlined by finance minister Arun Jaitley while presenting the federal budget in February last year. Bringing HPCL into its fold would make ONGC the nation’s third biggest refiner after Indian Oil Corp. and Reliance Industries Ltd. Bloomberg
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