ONGC to sell stakes in IOC, GAIL

For funding the Rs. 36,915 crore HPCL deal, ONGC has received government approval to sell stakes in IOC and GAIL. Given the levels that the benchmark indices are trading these days, it is fair to assume that government wants to expedite the 51.11 per cent stake sale of HPCL to ONGC.

Oil and Natural Gas Corp Ltd (ONGC) holds 13.77 per cent stake in Indian Oil Corporation (IOC), valued at Rs 26,200 crore and 4.86 per cent stake in GAIL, valued at Rs 3,847 crore. It is expected that ONGC would pay around Rs. 12,000 crore through cash and short-term borrowing.

Despite little synergies between the upstream operation of ONGC and downstream operations of Hindustan Petroleum Corp Ltd (HPCL), the government has forced the companies to merge in a bid to achieve its disinvestment target of Rs 72,500 crore for FY18. But the financial ratios of ONGC will remain largely unchanged post the deal and the transaction is likely to be credit neutral for the company.

In terms of capacity, HPCL will add 23.8 million tonnes of annual oil refining capacity to ONGC's portfolio, making it the third-largest Indian refiner, after IOC and Reliance Industries.

Following the news, the shares of all the three companies were trading higher on Tuesday. ONGC was trading at Rs. 207.15 per share, up by 3.60 per cent; IOC was at Rs. 389.20, up by 1.78 per cent, GAIL was at Rs. 472.35, up by 3.34 per cent.