ONGC may have to pay a premium to acquire government\'s stake in HPCL

ONGC will have to pay a premium to acquire Centre’s 51.1 percent stake in oil marketing company Hindustan Petroleum Corporation Limited (HPCL) under the proposed deal.

Financial Express reports that ONGC may have to pay the government approximately Rs 45,000 crore for taking controlling stake in the latter firm that is Rs 14,500 crore more than the estimated Rs 31,000-31,500 crore at the present valuation and a 45 percent premium over its current market capitalisation.

The deal received the government’s nod in July of last year after the Finance Minister Arun Jaitley in his Budget 2017 speech announced its plan to create an oil behemoth that will compete with international and domestic private oil companies.

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It has been reported in some publication that oil ministry has raised concerns over the valuation of the deal and wanted to wait for a while to allow ONGC to raise enough funds.

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The oil explorer has internally valued HPCL at a higher valuation than the current market price and is likely to pay the government through a mix of internal resources and debt raised through bonds.

The Department of Investment and Public Asset Management (DIPAM) has appointed JM Financial as the financial advisor and Cyril Amarchand Mangaldas as the legal consultant. While ONGC appointed SBICAP and Citigroup as merchant bankers for the deal and Shardul Amarchand Mangaldas as the legal adviser.

The deal is likely to help the government to meet its divestment target for the current financial year of Rs 72,500 crore of which it has so far raised Rs 54,000 crore. The fund received by the Centre would help in controlling the fiscal deficit.

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