ONGC- HPCL deal: A spanner in the works?

There's a spanner in the works in the ONGC- HPCL deal.
Sources tell ET Now that the Oil Ministry had two-three weeks ago expressed valuation concerns regarding the deal, that aims to create a big oil behemoth. "The valuation process should have been done by December end, however, deal contours and availability of funds with ONGC are a worry for the deal to go through in FY18." a source added.

The ONGC-HPCL deal is crucial for the government as it is expected to bring over Rs 30,000 crore to New Delhi's coffers in a year where uncertain tax revenues is increasing the risk of fiscal deficit slippage.

"The deal currently values government's 51.1% in HPCL at close to Rs 30,000 crore but we believe that this is well below the market value for HPCL's assets," a source told ET Now.

"Availability of funds is another issue as ONGC currently has around Rs 13,000 crore cash in its books and they were looking to raise another Rs 25,000 crore by 13.7% stake sale in IOC, but that will take some time to materialise," another official added.

ET Now also learns that ONGC had also sought details of HPCL's greenfield projects to get a fair picture of the risks the company would be taking before pumping in huge money.

The official also said there is a difference of opinion between the legal advisors and the financial advisors on the way the transaction needs to be conducted, the official said. DIPAM had appointed JM Financial as the financial advisor for the deal while Cyril Amarchand Mangaldas is the legal advisor for the stake sale.

ONGC's former chairman and managing director told ET Now that the deal should take place around the currently market price of HPCL as it is an extremely well-traded company. He further said if ONGC is forced to pay a premium then it should be maximum 10% to the CMP.

Meanwhile, Prayesh Jain of IIFL refrained from getting into valuations, but said that the ONGC has deep pockets to carry out the proposed merger and can also sell its minority stake in IOC to fund the HPCL deal.

In July, union cabinet gave its in-principle approval for acquisition of oil marketer HPCL by ONGC in a bid to follow up on the budget announcement of creating an state-owned oil behemoth.