MOSCOW (MRC) -- India's biggest explorer Oil and Natural Gas Corp (ONGC) has agreed to buy the government's majority stake in state-refiner Hindustan Petroleum Corp for USD5.78 billion, reported Reuters with reference to ONGC's statement on Saturday.
It will pay a premium of about 14 percent on HPCL's current market price for the 51.1 percent stake, the company said in a statement to the stock exchange. It expects to complete the transaction by end-January.
The deal is part of the government's objective to combine various public sector enterprises "to give them the capacity to bear higher risks" and create more value for shareholders, ONGC said.
Purchasing a stake in India's third biggest state-owned refiner would also help ONGC to diversify its cash flow and reduce its vulnerability to changing global crude prices, it added.
India's finance minister Arun Jaitley said in February that the country plans to form a national oil major by combining other state-owned firms. India also wants to expand in global oil markets to meet its growing domestic demand for fuel.
India has about a dozen state-owned oil and gas companies, with significant overlaps in operations. Alone they do not have the financial clout to rival global oil majors in bids for overseas exploration and production assets. India is the world's third biggest oil consumer, importing about 80 percent of its crude needs. Prime Minister Narendra Modi has set a target to reduce dependence on oil imports by 10 percent by 2020.
ONGC will pay 473.97 rupees per share for HPCL. The closing price for the shares on Friday was 416.2 rupees.
The proceeds from the HPCL stake sale will also help the federal government pay for welfare programs. Asia's third-largest economy has said it aims to raise 725 billion rupees through the sale of government stakes in various companies. (USD1 = 63.82 Indian rupees)
As MRC wrote previously, in April 2016, India-based JBF Petrochemicals signed a long-term agreement with ONGC Mangalore Petrochemicals Ltd. (OMPL) for the supply of paraxylene (PX), the main raw material in the production of purefied terephthalic acid (PTA). The agreement includes the supply of paraxylene (PX) over a period of 10 years, with a provision to further increase the period of supply by another 5 to 10 years by mutual consent.
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