State-run Hindustan Petroleum Corp (HPCL) may acquire two subsidiaries of Oil and Natural Gas Corp (ONGC) before the explorer takes over the refiner, a senior government official said. The two ONGC units are Mangalore Refinery and Petrochemicals (MRPL) and ONGC Petro Additions (OPaL).
Such a move would consolidate all of ONGC’s downstream operations in HPCL, leaving it free to focus on exploration and production. HPCL will look after refining and marketing, according to this line of reasoning.
HPCL already has a 16.96% stake in MRPL, in which ONGC holds 71.63%. ONGC has a 49.36% stake in OPaL with GAIL holding 49.21%. The government has already begun the process of appointing transaction advisors for the ONGC-HPCL deal and will seek an independent valuation of its stake in the refiner.
The government currently holds a 51.1 % stake in HPCL. Earlier this week, the Cabinet Committee on Economic Affairs (CCEA) accorded “inprinciple approval” for the strategic sale of its stake, “along with transfer of management control” to ONGC.
HPCL will become a subsidiary of ONGC once this deal takes place. Department of investment and public asset management (DIPAM) secretary Neeraj Gupta said any proposal related to HPCL taking over the ONGC units has to come from the companies. Mergers and acquisitions are driven by economic considerations and fiscal prudence, he said.
“Government by announcement in the budget has explicitly supported such merger and acquisition which improvise economies of scale, value addition, vertical and horizontal integration, and value of investment in the company,” he said. The government will support any move that strengthens staterun companies and creates value for investors.
The government’s ONGCHPCL strategy is aimed at creating the first fully integrated oil company in India with exposure to upstream (exploration, production), midstream (refining) and downstream (retail) segments alongside petrochemicals, said the official cited above.
“The HPCL distribution network is underutilised. They are buying oil from outside and by acquiring MRPL they will be augmenting their refining capacity. This mega merger will ensure value addition to the whole chain,” the official said.
DIPAM secretary Gupta said: “We will do all due diligence and appoint transaction advisors and valuation advisors to independently evaluate the value of the holding through the established process for such divestment.” Market capitalisation is one of the factors that will be taken into consideration, he said, adding, “interest of all stakeholders shall be protected.” An alternative mechanism under finance minister Arun Jaitley has been set up to fast track the process.