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Oil PSU Sector Moves Towards Consolidation

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While the Union Cabinet is seriously motivating the ONGC-HPCL merger. The government is also almost agreed to approve another mega oil PSU merger by combining the giant refiner and marketer Indian Oil Corporation and oil exploration firm Oil India Limited.

According to market reports, Indian Oil is negotiating to buy out the government’s 66 per cent stake in the exploration and production major Oil India. However, the other details of the deal have not been worked out yet, according to the referred reports.

The move is in line with the Modi government’s plans to create integrated oil and gas majors, as the Finance Minister announced in his 2017 budget speech.

The IOC and Oil India merger will be preceded by a stream of deals between the state-owned oil companies, including the completion of a 3 per cent stake sale by the government in IOC which the cabinet already approved, and the ONGC’s 14 per cent stake sale in IOC in order to fund the 51 per cent buy out of HPCL.

With Oil India’s m-cap just being 10 per cent of that of IOC, the IOC-Oil India merger is likely to be transacted with greater ease as compared to the ONGC and HPCL merger deal.

In the previous fiscal, IOC had emerged as the most profit making PSU in India, setting back ONGC.

The IOC stock price rose by one per cent to Rs 377.55 in Tuesday’s early trade. However, the share price of Oil India Limited stood at Rs 273.15, down by 0.40 per cent in the intraday trade.

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