The oil ministry is drafting a proposal to combine the two publicly traded subsidiaries of Oil and Natural Gas Corp (ONGC), Mangalore Refinery and Petrochemicals Ltd (MRPL) and Hindustan Petroleum Corp Ltd (HPCL).

When ONGC bought HPCL from the government five years ago, the notion of a merger between MRPL and HPCL was discussed, but little progress was achieved. According to the aforementioned sources, the ministry is currently pressing for the merger, which will probably involve a share exchange.

They claimed that there would be no financial outlay and that HPCL would most likely issue new shares to MRPL owners as part of the merger. The ONGC and HPCL are MRPL’s promoters. The public owns 11.42% of MRPL, followed by HPCL at 16.96% and ONGC at 71.63%.

Through the acquisition, ONGC’s present 54.9% holding in HPCL will be dramatically increased, lowering the free float. The oil ministry will probably ask the cabinet for approval of the proposed combination of HPCL and MRPL. ONGC, HPCL, MRPL, the oil ministry, and ONGC all declined to comment.

The HPCL-MRPL combination might need to wait until next year, according to one individual, who argued that the rule calls for a minimum two-year buffer between any two mergers a business undertakes. Last year, MRPL completed the merger of its subsidiary, OMPL, with itself.

The merger plan, which aims to combine the majority of the downstream assets of the ONGC group under HPCL, will probably result in some tax gains. More fuel is sold by HPCL, which has a substantial retail network, than is produced at its refineries.

It will have internal access to MRPL’s goods following the merger. Since MRPL doesn’t have a robust domestic sales network, a substantial amount of its items are sold to merchants outside of Karnataka and are therefore subject to central sales tax (CST). People claimed that a merger may reduce MRPL’s CST expenses.

According to a person with knowledge of the matter, MRPL personnel may be concerned about a merger because they may be transferred to HPCL’s other refineries.

The oil ministry had suggested the former to conduct a three-way merger of HPCL, MRPL, and OMPL to combine the group’s downstream businesses shortly after ONGC’s Rs 37,000 crore acquisition of HPCL. However, the relationship between the two businesses had deteriorated as a result of HPCL’s year-long refusal to acknowledge ONGC as its promoter.

The merger of OMPL and MRPL was completed because ONGC opposed giving HPCL authority over MRPL. According to the previously referenced individuals, top officials at ONGC and HPCL have changed in the last year, and the two businesses are now more receptive to the concept of a combination.

By Industry Outlook, May 31, 2023