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ONGC to invest Rs 9 bn in MRPL post-buyout

Oil and Natural Gas Corporation said on Thursday that it has signed a conditional share purchase agreement with Aditya Birla Group of companies for acquisition of their equity in Mangalore Refinery and Petrochemicals.

"This 37.4 per cent equity is being purchased at Rs 2 per share," the company said in a statment in New Delhi.

ONGC officials said the exploration firm will inject about Rs 9 billion in Mangalore Refinery and Petrochemical Ltd after buying out Aditya Birla group's stake in the joint venture for Rs 595 million.

After acquisition of A V Birla group's stake, ONGC would pump in about Rs 6 billion as additional equity capital for gaining controlling stake in the 9 million tonnes refinery, ONGC officials said.

Besides, ONGC would also pump in about Rs 3 billion as working capital in the loss making refinery where Hindustan Petroleum Corporation is equal partners with the Birlas.

Earlier in the day, Birla group companies Hindalco, Indian Rayon, Grasim Industries and Indo Gulf informed the Bombay Stock Exchange about their decision to sell their 297 million equity shares in MRPL for Rs 2 a share.

As a result, ONGC would have close to 60 per cent stake in MRPL while HPCL's stake would fall from 37.39 per cent to 15-16 per cent.

ONGC sources exuded confidence of inking the deal by this month after approval from the Cabinet, for which petroleum ministry is likely to send a proposal soon.

For ONGC, which recently got permission from the government to sell petrol and diesel, acquisition of majority control in MRPL is a step closer to its objective of entering retail marketing of petrol and diesel.

Consortium of lenders to MRPL, led by ICICI, has conveyed in principle restructuring of debt that would involve converting part of the Rs 45 billion debt into equity and relaxation in interest liability.

"ONGC will now be in everything from exploration to refining crude," said Sunidhi Consultancy analyst Karthik Ramakrishnan.

"It gives ONGC access to a refinery that's already running and at a reasonable price."

The government on May 24 gave ONGC permission to set up 600 gasoline and diesel stations, its first push into the retail sector.

Analysts said the sale should also prove beneficial to Birla.

"It's good for Birla, as it's getting out of a losing company and can deploy management time in its core businesses," said a brokerage analyst.

ONGC's acquisition will effectively nationalise MRPL, as state-run ONGC and HPCL will own more than three quarters.

But The government plans to sell a stake in HPCL, and a government official told Reuters last week that ONGC could also be a possible sell-off candidate.

(With additional inputs from Reuters)

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