ONGC ties up loans with 3 banks for HPCL acquisition

The Oil and Natural Gas Corp has entered into short-term loan agreements with three banks to part-fund its acquisition of Hindustan Petroleum Corp Ltd. The banks are Punjab National Bank, Axis Bank and Bank of India, with agreements signed on 22 January for loans totalling to Rs18,060 crore.

As per a BSE filing made on late Tuesday evening, the agreements are for short-term loans to part-finance the acquisition of HPCL. The filing detailed that PNB will lend Rs10,600 crore, BOI Rs4,460 crore and Axis Bank Rs3,000 crore.

ONGC has a funding requirement Rs369.15 billion for buying government's 51.2 per cent stake in the country's second-largest petroleum retailer. As reported on Tuesday, it ultimately plans to finance the acquisition by selling its stake in Indian Oil Corp and GAIL, but this will happen only when prices are less depressed. Meanwhile it is going for the short-term borrowing (See: ONGC to sell stake in IOC, GAIL, but only when price is right).

The loan agreement with PNB has a sub-limit of Rs106 billion towards foreign currency loan for one year, said ONGC in its filing, adding that with Bank of India it has a loan agreement of $300 million sub-limit for FCNR (foreign currency non-repatriable) and FCTL (foreign currency term loan) for one year.

On Saturday, ONGC signed a share purchase deal with the government for buying HPCL for Rs 369.15 billion, paying a premium of over 10 per cent, taking a 60-day weighted average of HPCL scrip. The company plans to use a mix of cash balance and short-term borrowings.

On 21 January, the oil and gas explorer had said that various ''options'' including internal accruals and short-term borrowing are available to fund its acquisition of HPCL.

ONGC's acquisition would help Finance Minister Arun Jaitley to get over the revenue shortfall during the current financial year and narrow the fiscal deficit. The government targets to limit its fiscal deficit to 3.2 per cent of the GDP.