State-run Oil and Natural Gas Corporation will buy 20.9 per cent stake held by banks and financial institutions in its subsidiary Mangalore Refinery and Petrochemicals Ltd for around Rs 370 crore (Rs 3.7 billion).

"The Board of ONGC in its meeting on June 10 decided to exercise the call option for MRPL shares held by the lenders under the debt restructuring package," company sources said.

ONGC, which has 51.25 per cent stake in the loss-making firm, also plans to buy out Hindustan Petroleum Corporation Ltd's remaining 16.97 per cent stake in MRPL before making an open offer to acquire the remaining 11 per cent public stake.

"Ultimately, MRPL would be merged with ONGC to avail of tax benefits," they said.

After ONGC acquired Aditya Birla Group's 37.4 per cent equity in MRPL for Rs 59.43 crore (Rs 594.3 million), debt restructuring involving lenders converting part of their debt into equity and the state exploration firm infusing additional capital, was carried out.

The DRP, which also included cutting interest rate and pre-payment of part debt brought down debt-equity ratio from 15.02:1 to 2.83:1.

After the exercise, ONGC had 51.25 per cent stake in MRPL while joint venture partner HPCL's stake came down from 37.4 to 16.97 per cent.

"As per DRP, ONGC had an option to buyback equity from lenders within 5 years at a price of par value of Rs 10 per share compounded annually at 10.1 per cent per annum," sources said.