Issue No : 21 Moneta July 2017
But the HPCL shareholders are most certainly short changed . The exemption from the open offer means that minority shareholders are Left with no exit route ; actually it means they have no say whatsoever in this deal . Like cattle being taken led to the abattoir , HPCL shareholders can only bend their head and accept what is being forced upon them .
What irks is the control of the Govt . This all-cash deal to buy out the HPCL stake is done at the behest of the centre . It is not that ONGC is so flush with funds that it can buy this stake from internal accruals . The Chairman of the company has made it very clear that ONGC will have to take on more debt to fund this buy . So the question is why ? When the buyout could have been done through share swaps or through an all-stock deal , why this need to do all in cash , putting stress on ONGC ' s balance sheet ?
The answer is obvious isn ' t it - this way , through cash deal , the Govt . because of its stake will rake in enough money to meet at least one third of its divestment target of Rs . 72,500 Cr . Imagine one deal and one third of its target is met !
ONGC , apart from the money to be paid to buyout Govt . stake , might need to pay a 40-50 % premium on the stake sale . ONGC , as at 31st March 2017 had a cash reserve of Rs . 16,648 Cr . and including the premium and stake sale , will have to fork out around Rs . 40 , OOO Cr .. Clearly , it does not have the required cash and will thus have to take on more debt . It is not as though ONGC is debt free at end of FY17 ; its debt was already pretty big at Rs . 55,682 Cr .
So ONGC goes and buys out Govt .' s stake by increasing its debt and which in turn means , it curtails all its future investments and expansions . As foreign brokerage house CLSA suggested , why can ' t ONGC sell its 13.8 % stake held in IOC as it would fund almost the entire deal without having to resort to debt ? Obviously , if divestment coffers are to be filled , how can such logical steps be taken ? The aim is not to make ONGC stronger but more short term of meeting its targets as 2019 approaches .
If this deal goes through , the Govt . would have struck a gold mine - it will look at other cross holdings where it can ' force ' companies to sell stake and earn cash .
This again brings to mind the lack of autonomy which PSUs have , making us wonder why we look at PSUs at all when they are all but nothing but mulch cows and bailouts for the Govt .
The big news today is the outcome of the Cabinet on PSU bank mergers . The Govt . is working towards bringing down the number of PSU banks from the current 21 to 12 .
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