The Modi government has approved “in principle” sale of India's third-largest refiner-retailer Hindustan Petroleum to flagship explorer ONGC with the aim of creating an integrated Indian oil company with global size and heft. This is the harbinger of more such merger and acquisition (M&A) activities in the oil sector, top government functionaries said after the Cabinet's panel on economic affairs cleared ONGC's proposal to acquire the government's 51 per cent stake in HPCL, amid indication that Northeast explorer Oil India may go to the country's largest refiner-retailer Indian Oil next.
ONGC will follow the holding company route and not merge HPCL with itself after acquiring the government's stake. HPCL will continue as a listed subsidiary of parent ONGC, which will become a truly integrated entity that will be better equipped to tide over the ebb and flow of prices in the oil production and refining-marketing businesses. Former ONGC chairman RS Sharma said, “It (the deal) is strongly positive from all aspects for both ONGC and HPCL. The acquisition allows ONGC to become truly integrated with presence through the hydrocarbon value chain, something the company has been trying since its acquisition of MRPL.”
The only problem it sees could be for ONGC in raising funds in the short term. “But ONGC is with a rock solid company... it will not be problem really.” Also, ONGC can also sell its 13.8 per cent stake in Indian Oil.
