New Delhi: Hindustan Petroleum Corp. Ltd (HPCL) is likely to acquire Mangalore Refinery and Petrochemicals Ltd (MRPL) in a share-swap deal to become India’s second-largest oil refiner. The merger is likely to take place after ONGC, country’s biggest oil and gas explorer, completes 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 Corp. Ltd (ONGC). At present, ONGC owns 71.63% stake in MRPL while HPCL has 16.96%. Once ONGC acquires 51.11% stake in HPCL, India’s third-largest refiner, for about Rs35,000 crore, 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% 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 Rs16,800 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," 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 are 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. Ltd (IOCL). MRPL will be the third refinery of HPCL, which already has units at Mumbai and Visakhapatnam.

The government’s selling its 51.11% stake in HPCL to ONGC will 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.

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