DNA Money Edit: HPCL-ONGC deal a step towards creating stronger PSUs

In line with the government's decision to merge public sector companies and create global giants, Union Cabinet has given its nod to sell government's stake in state-owned refiner HPCL to explorer Oil and Natural Gas Corporation (ONGC). The plan is to shift the 51% government stake in HPCL to ONGC. The deal between two government departments will be exempt from open offer, and hence, the minority shareholders are unlikely to be benefited directly.

The government has already made its intentions clear. In the 2017-18 Budget speech, finance minister Arun Jaitley said the government sees "opportunities to strengthen" public sector units through consolidation, mergers and acquisitions. "We propose to create an integrated public sector 'oil major' which will be able to match the performance of international and domestic private sector oil and gas companies," he had said.

The HPCL-ONGC merger is clearly in that direction, and it could be just one among many. After merging five associate banks with the State Bank of India (SBI), the government has already created a banking behemoth and is in the process of merging weaker banks with strong ones to create a few more big banks. So the wave of consolidation is already sweeping the country in a big way.

In the merger of oil companies, it makes operational sense to merge HPCL with Mangalore Refinery and Petrochemicals Ltd (MRPL), another subsidiary of ONGC. MRPL is held 71.63% by ONGC and 16.96% by HPCL. Post the merger, HPCL is likely to run MRPL operations. The deal, likely to be completed within a year, will surely push the combined entity to the top league of oil companies in the world and give it a better bargaining power globally.