Indian Firms Plan Merger to Create Oil Giant

India’s top refiner Indian Oil Corporation may buy out the government’s 66% stake in exploration company Oil India, in a second deal involving oil firms that is part of India’s plan to create a giant integrated oil company.

It was not immediately clear if the transaction would be an all-cash deal, an all-stock deal or a mix of the two, ET Now reported on Monday, citing sources.

However, a possible IOC-Oil India deal could be an easier transaction to execute than the plan to merge the third-largest local refiner Hindustan Petroleum Corp (HPCL) and the country’s biggest explorer, state-held Oil and Natural Gas Corporation, Oil Price reported.  

Last month, the Indian government was said to plan to sell by the end of this year its 51.1% stake in HPCL to ONGC, in a deal valued at around $4.5 billion. The stake sale is part of India’s plan to create a state-held oil giant.

In early February this year, India’s Minister for Finance and Corporate Affairs Arun Jaitley said in the presentation of the 2017-18 budget in parliament that the country was planning to create an integrated public-sector oil major to match the performance of huge international private sector oil and gas companies.

Commenting on the plan about IOC buying the Indian government’s stake in Oil India, ET Now sources say that one view within the Cabinet is that it should be completed by the end of the current Indian fiscal year, while another view is that it should be completed after the ONGC-HPCL deal.

The government is getting ready to authorize the ONGC-HPCL deal.

India’s plan to merge some state-held oil enterprises could reduce inefficiencies in the sector, Fitch Ratings said in February, shortly after the initial project was announced.

An oil major would also be in a better position to compete for resources globally and withstand oil price volatility. On the downside, Fitch sees the plan as likely reducing competition on the domestic market and facing challenges in the actual executions of the mergers.