ONGC Will Raise Its First Ever Debt To Fund HPCL Buy

• ONGC will raise its first debt ever, of Rs 25,000 crore, to part fund HPCL stake buy.
  
• The resolution would come up for voting at the company's annual general meeting on September 27.
  
• The company is not likely to sell any of its stake in GAIL, IOC to fund the HPCL buy.
  
• The price most likely will be a 6-month average of HPCL scrip on the day of the decision.
  

Cash-rich Oil and Natural Gas Corporation Ltd. (ONGC) will raise its first debt ever, of Rs 25,000 crore, to part fund the Rs 37,000 crore acquisition of government's stake in Hindustan Petroleum Corporation Ltd. (HPCL).

India's largest oil and gas producer has about Rs 13,000 crore in cash and would need to borrow the rest to fund the buying of government's 51.11 percent stake in HPCL.

ONGC has sought shareholder approval for “borrowing/ raising funds in Indian rupee and/ or foreign currency by issue of debt instruments (including bonds, non-convertible debentures and notes) in domestic and/ or overseas market” of Rs 25,000 crore.

The borrowings would be for “acquisition of projects/ equity shares and/or going concerns, meeting capital expenditure, working capital requirements and general corporate purposes during the period commencing from the date of passing of Special Resolution till completion of twelve months thereof or the date of the next annual general meeting in the financial year 2018-19, whichever is earlier,” the company said in a shareholder resolution.

Also Read: JM Financial To Advise Government On HPCL Stake Sale To ONGC

The resolution would come up for voting at the company's annual general meeting (AGM) of shareholders on September 27.

The board of ONGC last month gave ‘in principle approval' for the acquisition of the government stake in HPCL, which at today trading price of Rs 477.65 is worth about Rs 37,000 crore.

ONGC holds 13.77 percent stake in IOC, which at Monday's trading price is worth Rs 28,800 crore. It also holds 4.83 percent stake in gas utility GAIL India Ltd, which is worth Rs 1,550 crore. But the company is not likely to sell any of it to fund the HPCL buy, officials said.

A six-member Committee of Directors has been constituted to examine various aspects of the acquisition and to provide its recommendations to the board.

The panel includes Chairman and Managing Director Dinesh K Sarraf and Director (Finance) AK Srinivasan as also independent directors KM Padmanabhan, Sumit Bose and Vivek Mallya.

Director (Technology & Field Services) Shashi Shanker, who has been selected to succeed Sarraf as the chairman of ONGC at the end of September, will also be part of the panel.

The official said the acquisition will be done as per the Sebi takeover code. The price most likely will be 6-month average of HPCL scrip on the day of the decision.

Also Read: Government Hits Pause Button After ONGC-HPCL Merger

The government last month had approved sale of its 51.11 percent stake in oil refinery HPCL to India's largest oil producer ONGC. Prior to the merger, HPCL is likely to take over Mangalore Refinery and Petrochemicals Ltd (MRPL) to bring all the refining assets of ONGC under one unit. ONGC currently owns 71.63 percent of MRPL while HPCL has 16.96 percent stake in it.

The official said ONGC will not have to make an open offer to minority shareholders of HPCL as the government's holding is being transferred toanother state-run firm and the ownership is not changing.

The deal will be completed within a year, he said. HPCL will become a subsidiary of ONGC and will remain a listed company post the acquisition, the source said, adding that the board of the refining and marketing company will continue to remain separate.

Also Read: Will Eventually Look At HPCL-MRPL Merger, ONGC Chairman Says

The government has also constituted a committee, headed by Finance Minister Arun Jaitley and comprising oil minister Dharmendra Pradhan and road minister Nitin Gadkari, to work out the modalities of the sale.

Jaitley had, in his Budget for 2017-18, talked about creating an integrated oil behemoth. After that oil companies were asked to give their options. ONGC had evaluated options of acquiring either HPCL or BPCL -- the two downstream oil refining and fuel marketing companies.

It found the nation's second-biggest fuel retailer BPCL too expensive and conveyed its choice to the parent oil ministry. Sources said the transaction is likely to be completed within the current financial year, ending March 31, 2018.

HPCL will add 23.8 million tonnes of annual oil refining capacity to ONGC's portfolio, making it the third-largest refiner in the country after IOC and Reliance Industries.