New Delhi: Oil and Natural Gas Corporation Ltd. (ONGC) and the President of India (President) have been engaged in discussions on a potential transaction for purchase by ONGC of the President’s shareholding of 51.11% in Hindustan Petroleum Corporation Limited (HPCL) [BSE/NSE: 500104/HINDPETRO] in furtherance of the budget announcement by the Government of India for creating an ‘oil major’ which will be able to match the performance of international and domestic private sector oil and gas companies.
About HPCL:
Standard Refining Company of India Limited was incorporated in 1952, and its name was
changed to ESSO Standard Refining Company of India Limited (ESSO) in 1962. HPCL was
formed in 1974 pursuant to the acquisition of shares in ESSO by Government of India and
subsequent merger of ESSO and Lube India Limited. Thereafter, Government of India
acquired shares of Caltex Oil Refining (India) Limited in 1976 and merged it with HPCL in
1978. Kosana’s Company was merged with HPCL in 1979. HPCL is currently a Central
Public Sector Enterprise (CPSE) with majority shareholding (51.11%) by President of India
The equity shares of HPCL are listed on the Bombay Stock Exchange and the National Stock
Exchange.
With a turnover of Rs 2,13,489 Crore and profit after tax of Rs 6502 Crore during 2016-17
HPCL ranks at 384th in Fortune Global 500 and 48th in Platts 250 Global Energy
Companies, HPCL, a CPSE, with Navratna Status has business portfolio spanning across the
hydrocarbon value chain and has a strong presence in Refining and Marketing of petroleum
products in the country. HPCL markets around 35.2 MMT of petroleum products with a
market share of about 21% and is number one lube marketer in the country. HPCL has its
refineries at Mumbai and Visakhapatnam and a joint venture refinery at Bhatinda. HPCL
owns the biggest Lube refinery in India and the second largest cross country product pipeline
network of about 3500 km. HPCL has a vast marketing network spread across the length and
breadth of the country with terminals, depots, LPG bottling plants, Lube blending plants,
aviation fuel stations and around 15000 retail outlets. HPCL owns and operates LPG cavern
at Visakhapatnam in joint venture with Total and have 16.96% equity stake in Mangalore
Refining and Petrochemicals Ltd. HPCL also have other joint ventures in the areas of City
Gas distribution, cross country pipelines, production and marketing of bitumen emulsions
and bio fuels. HPCL is also setting up a state of the art greenfield Refinery cum
Petrochemical Complex of 9MMTPA capacity in Rajasthan and is expanding its existing
refinery.
ONGC Board on 19th January, 2018 considered the proposal and approved acquisition of the
entire 51.11% shareholding (778,845,375 equity shares) of the President of India, at a cash
purchase consideration of INR 473.97 per share with a total acquisition cost of Rs. 36,915
Crore.
ONGC has entered into a share purchase agreement with the President for acquiring the
778,845,375 equity shares of HPCL (representing 51.11% of HPCL) on 20th January 2018.
The parties expect to complete the transaction before end of January 2018.
As the Government of India (GOI) through President of India, being the promoter of ONGC
(holding 67.72%) and HPCL (holding 51.11%) is the seller, the transaction is a related party
transaction between the Government and a government company within the meaning of the
SEBI (Listing Obligations and Disclosure Requirements) Regulation 2015 (LODR) and the
Companies Act 2013 (Act). The SEBI has been pleased to grant an exemption from the
application of Regulation 23 of the LODR to ONGC for this transaction vide its letter dated
30 November 2017. Requisite approval from the shareholders of ONGC for the related party
transaction will be sought by ONGC after the execution of the share purchase agreement in
accordance with provisions of Section 188(3) of the Act. 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. The Ministry of Corporate Affairs has notified an
exemption for CPSEs in the oil and gas sector from the applicability of provisions of
Sections 5 and 6 of the Competition Act 2002 on 22 November 2017, which exemption is
applicable to this transaction. The CCEA has provided its in-principle approval for the
transaction on 19 July 2017 and the alternate mechanism set up for the finalizing the
price, terms and conditions of the transaction has accorded its final approval on 20th
January 2018. No other regulatory approvals are required for the transaction.
The acquisition has been undertaken in furtherance of the Government’s objective to
combine the various central public sector enterprises to give them capacity to bear higher
risks, avail economies of scale, take higher investment decisions and create more value for
the stakeholders and create an ‘oil major’ which will be able to match the performance of
international and domestic private sector oil and gas companies. ONGC expects 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, lower earnings volatility, diversified cash flows and lower business risk resulting in
better valuation and higher shareholder value. HPCL and ONGC have a complimentary asset
portfolio and through this acquisition, ONGC is gaining a midstream and downstream
presence and access to a marketing network. ONGC will also gain access to marketing
network of HPCL which could be synergistically utilised for projects such as MRPL, OPaL.
SBI Capital Markets Ltd., and Citi Global acted as the Transaction Advisors and Shardul
Amarchand Mangaldas acted as the Legal Advisor to ONGC.
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