The oil ministry is drawing up a proposal to merge Mangalore Refinery and Petrochemicals Ltd (MRPL) into Hindustan Petroleum Corp Ltd (HPCL), the two listed subsidiaries of Oil and Natural Gas Corp (ONGC), according to people familiar with the matter.
The idea of the MRPL-HPCL merger had been floated soon after ONGC acquired HPCL from the government five years ago but made little progress. The ministry is now pushing for the merger, which is likely to be a share-swap deal, said the people cited above.
HPCL will likely issue fresh shares to MRPL shareholders as part of the merger and there will be no cash outgo, they said.
HPCL and ONGC are the promoters of MRPL. ONGC holds 71.63% in MRPL, followed by HPCL at 16.96%, with the public holding 11.42%. The transaction will significantly increase ONGC’s stake in HPCL from the current 54.9%, reducing the free float.
The oil ministry is likely to seek cabinet’s nod for the HPCL-MRPL merger proposal. The oil ministry, ONGC, HPCL and MRPL declined to comment.
The HPCL-MRPL merger may have to wait until next year, a person said, arguing that the regulation requires a gap of at least two years between two mergers that a company undertakes. MRPL concluded the merger of its subsidiary OMPL with itself last year.
The merger plan, aimed at consolidating most of the ONGC group’s downstream assets under HPCL, will also likely bring some tax gains. HPCL, which has a vast retail network, sells much more fuel than it produces at its refineries. After the merger, it will have in-house access to MRPL’s products. MRPL doesn’t have much of a domestic sales network and sells a substantial proportion of its products to retailers outside Karnataka, attracting central sales tax (CST). A merger can help cut CST outgo for MRPL, people said.
A merger may be cause for concern among MRPL employees as they could be transferred to other refineries of HPCL, said a person familiar with the situation.
Soon after ONGC’s Rs 37,000 crore acquisition of HPCL, the oil ministry had advised the former to undertake a three-way merger of HPCL, MRPL and OMPL to consolidate the group’s downstream assets. But with HPCL refusing to recognise ONGC as its promoter for a year, the relationship between the two companies had soured. ONGC resisted the idea of transferring MRPL’s control to HPCL and went ahead with the merger between OMPL and MRPL. Top executives at ONGC and HPCL have changed in the past year and the two companies are now more open to the idea of the merger, said the people cited previously.
