ONGC will 'drown in debt' with HPCL buy-out

Vol 20, PW 19 (15 Jun 17) People & Policy

Few these days are bold enough to publicly question Narendra Modi's judgment.

But as its share price drops sharply, company sources complain in private ONGC will drown in debt if forced to buy the government's 51.11% stake in refiner Hindustan Petroleum under a mega-merger designed to create an integrated oil major of Exxon or Shell like proportions. "We've estimated the cost of acquiring the government's stake in HPCL will be Rs26,000cr ($4.5bn)," a well-placed ONGC source tells us.

"Or even higher if we are forced to make an open offer to retail investors (individual shareholders)." As of today, retail investors hold 22.43% in HPCL; foreign institutional investors hold 16.88%; mutual funds hold 6.25%; financial institutions hold 3.24% and banks hold 0.09%. "In total the HPCL acquisition can easily cost us $5bn," he adds.

"ONGC will have to take loans; there is no other option." Our source reminds us ONGC is also struggling to arrange funds to make an upfront $995.26m payment to GSPC for its 80% stake at KG-OSN-2001/3. "No payment has yet been made to GSPC," he confirms.

ONGC fears that such large payouts will impact current and future projects. With only Rs9956cr ($1.6bn) in cash and bank balances, according to its 2015-16 annual report, ONGC might struggle to meet its Rs76,000cr ($12.6bn) CAPEX commitment over the next three-four years for projects approved by the Board.