ONGC, HPCL merger receives in-principle approval from Cabinet

ONGC-HPCL merger has finally received an in-principle approval from the cabinet. The government is going to sell its Entire stake of 51.11% of the government in Hindustan Petroleum Corporation Limited (HPCL) is going to be sold to Oil and Natural Gas Corporation (ONGC).
 
Abigger state-run integrated oil major that can compete with private and foreign players is now ready to be created by the state. This may trigger a consolidation drive among many oil companies in the future.
 
Current market capitalizationof HPCL stands at around USD 9 billion, while current market capitalisation of ONGC stands at around USD 32.5 billion.
 
The bigger oil player in the country will still not be as big as global players like British Petroleum,ExxonMobil or Shell. The total market capitalisation of ONGC-HPCL after merger would be around USD 42 billion, which is comparable to Rosneft,Russia’s energy giant. A bigger oil player will create economies of scale for the merged entity and will have higher capacity to bear risks and more efficiency.
 
ONGC has lost around 18.58% on YTD basis and HPCL has gained around 24% in its share price. ONGC may have to borrow or sell some of its investments to fund this deal.
 
Market is waiting for the clarifications in the procedure of ONGC-HPCL integration. ONGC have exempted from making an open offer and therefore HPCL shareholders may get disappointed.