India’s Oil and Natural Gas Corporation (ONGC) has signed an agreement to acquire 51.11% stake in state-refiner Hindustan Petroleum Corporation (HPCL) for Rs369bn ($5.78bn).

Under the terms of the deal signed with the Government of India, oil and gas explorer ONGC has agreed to acquire 778,845,375 equity shares in state-owned refiner HPCL for a cash consideration of INR473.97 per share. The deal is planned to be completed by end-January.

ONGC said in a statement: “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.”

The company said that acquisition would help in diversifying its cash flow and reduce its vulnerability to changing global crude prices.

With a market share of about 21%, HPCL markets around 35.2 million metric ton (MMT) of petroleum products in the country. It has its refineries at Mumbai and Visakhapatnam and a joint venture refinery at Bhatinda.

HPCL owns the Lube refinery in India and the second largest cross country product pipeline network of about 3500km.

Besides, HPCL owns and operates LPG cavern at Visakhapatnam in joint venture with Total and have 16.96% equity stake in Mangalore Refining and Petrochemicals.

Upon completion of the deal, ONGC is expected to become first vertically integrated oil major company in the country with presence across the entire value chain, the Indian Ministry of Finance said.

Additionally, the firm will have enhanced capacity to bear higher risks and the ability to make higher investment decisions.

The Finance Ministry said in a statement: “Through this economic consolidation, HPCL will join as a member of an integrated oil and gas major group. This will help it in further leveraging synergy at various levels of vertical value chains and look for economic consolidation within and outside the Group.

“However, HPCL will continue to be a Central Public Sector Enterprise (CPSE).”

ONGC said that the acquisition includes HPCL’s midstream and downstream assets as well as marketing network.

The transaction, however, is exempt from the requirement to make an open offer.

Image: HPCL’s oil refinery in Visakhapatnam, India. Photo: courtesy of IM3847/Wikipedia.