HPCL, ONGC merger wouldn’t bring synergy: Ambit Capital

560 times viewed
Source: The Economic Times
Wednesday, July 19, 2017

 NEW DELHI: Acquisition of government stake in HPCL by ONGC wouldn't bring much synergy benefits to the two companies but would, instead, result in the weakening of high-performance culture at the target company, Ambit Capital has said in a report. 

"ONGC parentage could mean interference (from ONGC or government), highly probable participation in upstream and, more importantly, dilution of a high-performance culture," analysts Ritesh Gupta and Gaurav Khandelwal wrote in a note on Tuesday. 

"We believe long-term holders should get concerned as the deal gets closed and HPCL becomes a subsidiary to ONGC, which doesn't have such a good track record on capital allocation," the analysts wrote, wondering how HPCL can gain by becoming a unit of ONGC in an era where oil subsidies have vanished and crude prices are unlikely to cross $60/barrel in a hurry. 

The transaction would most likely happen at close to the current market price, and not at a premium, in the same way as other divestment deals by the government in the past few years have happened, the report said. 

"We believe that the government would not like to show itself in a bad light before ONGC's minority shareholders," the analysts wrote. 

"An open offer or substantial premium for HPCL is unlikely by ONGC; during government stake sale, SEBI laws allow avoidance of open offer if ultimate ownership remains the same and premium paid is less than 25 per cent," they wrote. 
At current prices, the government stake in HPCL would cost ONGC about $4.5 billion and would raise the acquirer's debt-equity ratio to 0.4 from 0.2 now, according to the report. 


Post Your Comment:


Also Read:


Over 60,000 petrol pumps in India, 45% jump in 6 years


Second round of auction of DSFs likely by January-end


HPCL kicks off campaign to encourage judicious use of petro products


Petronet drops plans to buy stake in GSPC's Mundra LNG plant


ONGC says HPCL acquisition to be completed by March


Indian Oil denies role in Sri Lanka fuel crisis


L&T plans to bid for more ONGC work after Daman win


Import of oil-drilling rigs kept out of GST purview


IGL launches pre-paid smart cards for CNG, cooking gas


Petrol dealers call off strike, allege arm-twisting by OMCs

Home | Recent News | Privacy Policy | Disclaimer | Feedback | Sitemap | Contact Us

© Copyright Power Hub 2012-2014, All rights reserved.