ONGC raises borrowing limit to Rs 350 billion for HPCL deal

State-run Oil and Natural Gas Corporation (ONGC) on Sunday said that the company has increased its borrowing limit to Rs 350 billion for the acquisition of government’s entire 51.11 per cent stake in oil refiner Hindustan Petroleum Corporation (HPCL).  

However, ONGC chairman and managing director Shashi Shankar said that borrowing will be the final option before the board to finance the deal. “We have a cash balance of about Rs 130 billion. In addition to this, our liquid assets in the form of stakes in Indian Oil Corporation and GAIL (India) worth about Rs 300 billion. If required only, we will go for the third option of short-term borrowing, the limit of which was extended by the board to Rs 350 billion now from Rs 250 billion,” Shankar said.

On Saturday, a share purchase deal was signed to buy the government stake in HPCL for Rs 369.15 billion, paying a premium of over 10 per cent taking a 60-day weighted average of HPCL scrip. According to sources, the company may not use its entire cash balance at one go, instead may go for the option of a mixture of using cash balance and short-term borrowings. Later, the company may sell its liquid assets at an appropriate value to payback the borrowings. Moreover, the company also has loan commitments in place from domestic and foreign lenders totaling over Rs 500 billion, sources said.

With the HPCL deal and the GSPC deal that was closed early this year, ONGC will be completing an in-organic growth to the tune of Rs 480 billion for the financial year 2017-18 only.  Shankar added that the company may not require shareholder approval for increasing the borrowing limit.  “HPCL is a well-run company and we have Mangalore Refineries (MRPL) too in the downstream space. For sourcing of crude oil this will be advantageous as we will be getting more bargaining power,” he said.  

ONGC’s valuation adviser Earnst & Young (EY) had put HPCL’s valuation at Rs 475 a share plus a premium for getting the controlling stake.  The company said in a statement on Saturday that its board approved the acquisition of the shares at a cash purchase consideration of Rs 473.97 per share. “We offered well within the numbers recommended by the consultant. Though HPCL will become a subsidiary of ONGC, its identity as a CPSE will be maintained and will continue to be a listed entity,” Shankar said.  

However, he did not rule out a future merger between HPCL and MRPL. “That could be one of the logical options before us. However, we need to have all the approvals in place,” he added. Following the deal, HPCL chairman is likely to become managing director, while ONGC representation will be there on the board of HPCL. “These things we will finalise later,” Shankar said.