Cabinet approves merger of ONGC, HPCL for Rs 29k crore

The Cabinet on Wednesday approved a proposal to sell the government’s share in the state-owned Hindustan Petroleum Corporation Limited (HPCL) to Oil and Natural Gas Corporation (ONGC) for close to Rs 29,000 crore.

The government owns 51.11% in HPCL. Post the merger, HPCL will, however, remain a separate entity and operate as ONGC’s subsidiary.

HPCL will add 23.8 million tonnes of annual oil refining capacity to ONGC’s portfolio, making it the third-largest refiner in the country after IOC and Reliance Industries.

According to ONGC Chairman Dinesh Sarraf, the merger will unlock a lot of value in the company and be more sustainable.

HPCL will remain a listed company after the merger. There will be no open offer by HPCL. The government will transfer its holding to ONGC, the sources attending the Cabinet meeting said. They said that HPCL will continue to be in the fuel retailing business post the merger.

Benefits all stakeholders
According to R S Sharma, former CMD of ONGC, the move would benefit all the three stakeholders. While the government would get good disinvestment, ONGC would be an integrated company and HPCL will be able to leverage ONGC’s balance sheet and improve its own credit rating.

Over 35% of government's disinvestment target of Rs 72,500 is expected to come through the merger. Sources said the merger will be completed within a year.

Before the merger, ONGC will merge with its refining subsidiary the Mangalore Refinery and Petrochemicals Ltd (MRPL). ONGC currently owns 71.63% of MRPL while HPCL owns 16.96% in the company. MRPL has a capacity to process 14 million tonnes per annum crude oil. MRPL is also in the process of upgrading its facility to produce BS-VI compliant fuel.

According to a top official of ONGC, the company has kept ready a funding plan and the ONGC-MRPL deal would be done before the merger. Finance Minister Arun Jaitley had proposed the idea of an integrated oil company in his Budget speech this year.