Hindustan Petroleum Corp Ltd (HPCL) is likely to acquire Mangalore Refinery and Petrochemicals (MRPL) in a share-swap deal to become India’s second-largest oil refiner. The merger is likely to take place after ONGC, the country’s biggest oil and gas explorer, completes the acquisition of HPCL in an all-cash deal by December or January, officials in know of the development said.
MRPL is a subsidiary of Oil and Natural Gas Corporation (ONGC). At present, ONGC owns 71.63 per cent stake in MRPL, while HPCL has 16.96 per cent.
Once ONGC acquires 51.11 per cent stake in HPCL, India’s third-largest refiner, for about Rs. 350 billion, it will have two refinery subsidiaries — HPCL and MRPL. “It does not make economic sense to have two separate subsidiaries for the same business. And so the logical move would be to integrate MRPL with HPCL,” an official said. The government is selling its entire 51.11 per cent holding in HPCL to ONGC for all-cash. HPCL will become a subsidiary of ONGC after the deal and retain independent board.
“HPCL can acquire MRPL either by buying out ONGC’s shares, which at today’s trading price is worth close to Rs. 168 billion. The other option is share-swap, wherein ONGC will get more shares in HPCL in lieu of it giving up its control in MRPL,” the official said. Share-swap, he said, is most likely option for the merger. “An exercise to arrive at valuations etc will begin shortly,” he said.
Another official said it makes business sense for ONGC to bring all its refinery business under one umbrella. He said the board of ONGC and HPCL is yet to consider the proposal.
HPCL will add 23.8 million tonnes of annual oil refining capacity to ONGC’s portfolio. This together with 15 million tonnes refinery of MRPL will create India’s second-biggest state-owned oil refiner after Indian Oil Corp (IOC). MRPL will be the third refinery of HPCL, which already has units at Mumbai and Visakhapatnam. The government’s 51.11 per cent stake sale in HPCL to ONGC will enable it achieve the disinvestment target for the current fiscal. The transaction will allow the government to monetise its HPCL ownership without losing ultimate control of the company.