ONGC to acquire majority stake in HPCL for $5.78bn

India’s Oil and Natural Gas (ONGC) has signed an agreement to acquire a 51.11% stake of government-owned refiner Hindustan Petroleum (HPCL) in a deal valued at $5.78bn.

The acquisition forms part of the government’s plan to strengthen oil companies by combining various public sector enterprises and enable them to tackle higher risks, avail economies of scale, create shareholder value and take higher investment decisions.

Under the share purchase agreement, the company will purchase 778,845,375 equity shares of HPCL.

ONGC will pay Rs473.97 per HPCL share, a premium of nearly 14% on the current market price.

Formed in 1974, HPCL is currently a Central Public Sector Enterprise (CPSE) with a business portfolio ranging across the hydrocarbon value chain, including refining and petroleum marketing sectors.

The company owns two refineries located at Mumbai and Visakhapatnam, as well as a joint venture refinery at Bhatinda.

It is also engaged in the areas of gas distribution, cross country pipelines, production and marketing of bitumen emulsions and bio fuels through various joint ventures.

Furthermore, HPCL is setting up a greenfield refinery and petrochemical complex with a capacity of 9mmtpa capacity in the Indian state of Rajasthan.

Expected to be completed by the end of this month, the acquisition is set to help ONGC diversify its cash flow to midstream and downstream businesses, as well as reduce its vulnerability to sudden fluctuations in global crude prices.