HPCL merger: MRPL faces minimum 25% public shareholding norms test

MRPL has time till August 21 to meet minimum public shareholding norms; merger process could take much longer

Oil and Natural Gas Corporation (ONGC) is looking to merge its subsidiaries, Mangalore Refineries and Petrochemicals (MRPL) and Hindustan Petroleum Corporation Ltd (HPCL), with itself. However, there is the issue with MRPL regarding the regulatory norms on minimum public shareholding.

The Mangalore refiner is yet to meet the market regulator Sebi guidelines of meeting the minimum 25 per cent public shareholding norm by August 21 this year. The government of India holds 88.58 per cent stake in MRPL through ONGC and HPCL, while public stakes are as low as 11.42 per cent.Hence, ONGC and HPCL are facing the tough question of whether to offload around 14.58 per cent stake in MRPL to public or to speed up the planned merger process between HPCL and MRPL. However, both the companies have not yet appointed a consultant for the merger process and expect to complete the process of vertical integration between the two ONGC subsidiaries in a year.

The minimum public shareholding norm was one of the major issues before the HPCL board when it discussed the merger plans on May 15. “The issue of public shareholding is under evaluation. We have time till August to sort out this issue,” M K Surana, its chairman and managing director, said last week.  At present, ONGC holds 71.63 per cent and HPCL has 16.96 per cent in MRPL.

Generally, to meet the requirement, companies look at options like sale of shares held by promoters through a secondary market institutional placement programme, issuance of shares to the public, offer for sale, a rights issue or bonus shares to public shareholders. In addition to this, sale of shares held by promoters or promoter groups in the open market through block and bulk deal is another option that companies generally switch to.

“If merger happens as planned, the shareholding issue will be solved,” ONGC chairman Shashi Shankar told Business Standard. With a merger, the new entity will automatically have more than 26 per cent of public shareholding. “Directionally, a merger between MRPL and HPCL brings value and makes sense. We are trying to do it within this financial year,” said Surana at a press conference after the March quarter’s results.

HPCL and MRPL together will have annual refining capacity of 35 million tonnes and a retail network of around 15,000. In April, there were reports that the finance ministry was planning to approach Sebi for a relaxation to some state-owned entities from meeting the minimum public shareholding rule, including a few up for strategic sale. If MRPL gets a relaxation, the promoter will have enough time to complete the merger. Else, it will have to race against time to complete the process by August. Sebi had given an exemption for ONGC from making an open offer last year, when it acquired 51.11 per cent in HPCL.

According to reports, to complete the MRPL deal, HPCL has three options before it. It can either buyout ONGC’s shares, which will come to the tune of around Rs 114.9 billion based on the current market cap or go for a share-swap deal and can go for a combination of both these options.