ONGC To Buy Government Stake In HPCL For Rs. 36,900 Crore

India's biggest explorer Oil and Natural Gas Corp (ONGC) has agreed to buy the government's majority stake in state-refiner Hindustan Petroleum Corp for Rs. 36,900 crore ($5.78 billion), ONGC said on Saturday.

It will pay a premium of about 14 per cent on HPCL's current market price for the 51.1 per cent stake, the company said in a statement to the stock exchange. It expects to complete the transaction by end-January.

The deal is part of the government's objective to combine various public sector enterprises "to give them the capacity to bear higher risks" and create more value for shareholders, ONGC said.

Purchasing a stake in the country's third biggest state-owned refiner would also help ONGC to diversify its cash flow and reduce its vulnerability to changing global crude prices, it added.

Finance Minister Arun Jaitley said in February that the country plans to form a national oil major by combining other state-owned firms. India also wants to expand in global oil markets to meet its growing domestic demand for fuel.

The country has about a dozen state-owned oil and gas companies, with significant overlaps in operations. Alone they do not have the financial clout to rival global oil majors in bids for overseas exploration and production assets.

India is the world's third biggest oil consumer, importing about 80 per cent of its crude needs. Prime Minister Narendra Modi has set a target to reduce dependence on oil imports by 10 per cent by 2020.

ONGC will pay Rs. 473.97 per share for HPCL. The closing price for the shares on Friday was Rs. 416.2.

The proceeds from the HPCL stake sale will also help the government pay for welfare programmes. The government has said it aims to raise Rs. 72,500 through the sale of government stakes in various companies.

Agencies