HPCL-MRPL merger likely before FY19, says Hindustan Petroleum CMD

HPCL sells more petroleum product than it produces, and bringing MRPL’s 15 million tonne per annum (MTPA) refinery under the fold would help bridge the shortfall.

Hindustan Petroleum Corporation Ltd (HPCL) is keen to takeover Mangalore Refinery and Petrochemicals Ltd (MRPL) before the end of 2018-19 financial year as there are a lot of synergies arising from the merger, Chairman and managing director Mukesh Kumar Surana said on Wednesday.

Mukesh Kumar Surana, chairman and managing director of Hindustan Petroleum Corp. (HPCL), looks on during the India Energy Forum by CERAWeek in New Delhi, India, on Tuesday, Oct. 10, 2017.(Anindito Mukherjee/Bloomberg)

Oil and Natural Gas Corp (ONGC), India’s biggest oil and gas producer, earlier this year completed the acquisition of HPCL for ₹36,915 crore.

After this takeover, ONGC has two oil refining subsidiaries - Hindustan Petroleum Corp Ltd (HPCL) and MRPL. A move is afoot to bring the two refining units under one umbrella.

Surana said standalone refineries with no marketing infrastructure, like MRPL, do not make big business sense.

For one, HPCL sells more petroleum product than it produces, and bringing MRPL’s 15 million tonne per annum (MTPA) refinery under the fold would help bridge the shortfall. It currently buys the shortfall in the product from other refineries, including MRPL.

“Having MRPL as part of HPCL will bring efficiencies,” he said. “In principle it makes sense but modalities have to be worked out.”

HPCL operates a 7.5 MTPA refinery at Mumbai and 8.3 MTPA unit at Visakh in Andhra Pradesh. Its subsidiary, HPCL-Mittal Energy Ltd operates 11.3 MTPA unit at Bhatinda in Punjab. MRPL would bring to it a 15 MTPA refinery, helping bridge the fuel shortfall it currently has.

Also, there can be synergies in crude oil procurement as well as in optimising refinery set-up.

“Directionally it (merger of MRPL with HPCL) makes value and sense... we are trying if we can do it within this fiscal,” Surana said adding the merger could be either through share swap or cash buyout or a combination of both.

HPCL can acquire MRPL either by buying out ONGC’s shares, which at Wednesday’s trading price are worth just over ₹12,300 crore. The other option is share-swap, wherein ONGC will get more shares in HPCL in lieu of it giving up its control in MRPL. A third option and more preferable is a combination of the two.

Modalities would be worked out and taken to board in due course of time, he said.

ONGC plans to maintain HPCL as an independent listed company under whom all its downstream units can be consolidated.

MRPL, in fact, originally was built by HPCL in a joint venture with A V Birla Group. ONGC in 2003 acquired Birla Group stake and made it its subsidiary. HPCL continues to hold minority stake in MRPL.

While ONGC holds 71.63% stake in MRPL, HPCL has 16.96%.

After ONGC completed acquisition of the government’s 51.11% shares, HPCL has become its subsidiary.