ONGC Buys Govt Stake in HPCL for $5.8bn

India’s largest state-owned oil and gas firm Oil and Natural Gas Corporation (ONGC) has acquired the Indian government’s 51.11% stake in another state-owned company, Hindustan Petroleum Corporation Limited (HPCL), for rupees 360bn ($5.8bn), it said January 20.

The parties expect to complete the transaction before end of January 2018.

HPCL markets around 35.2 million metric tons of petroleum products with a market share of about 21% and has its refineries at Mumbai and Visakhapatnam and a joint venture refinery at Bhatinda. HPCL owns the second largest cross-country product pipeline network of about 3,500 km. 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.

“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 said.

ONGC believes 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.