New Delhi, Jan. 22: ONGC is set to enter the downstream refining and marketing segment with the finance ministry today finally clearing the upstream oil major’s acquisition of a 51 per cent stake in Mangalore Refineries and Petrochemicals Ltd (MRPL).
The Rs 660-crore ONGC proposal, which has been hanging fire for over four months with the public investment board of the finance ministry, will now be sent to the Cabinet Committee on Economic Affairs (CCEA) for clearance.
On ONGC takeover, MRPL would be the only Indian refinery operating on equity crude.
ONGC chairman and managing director Subir Raha said: “We are happy that the finance ministry has approved our proposal. We hope that the CCEA will clear the proposal at the earliest as it will take six weeks to complete the debt restructuring, necessary before March 31 to prevent the loans to MRPL from being converted into non-performing assets (NPAs).”
Financial institutions faced the prospect of seeing their NPAs balloon by Rs 5,400 crore as the proposal had been held up in the finance ministry even as the March 31 deadline loomed by when the net worth of the company would have turned negative unless the debt was restructured.
The financial institutions are willing to restructure the debt once ONGC is allowed to take over the company. They have accepted a four-year moratarium on the payment of the principal amount and lowered the interest rate on loans from 13.5 per cent to 9.2 per cent. This will make the company financially viable as the current debt-equity ratio of 15.4 : 1 is the chief hurdle that has made the venture unviable.
As per the debt restructuring proposal, Rs 600 crore additional equity infusion by ONGC would go to pre-pay part of the Rs 5,492 crore debt. Besides, the consortium of 15 lenders would convert Rs 278 crore worth of debt into equity and another Rs 122 crore debt into preference shares/zero coupon bonds.
The Aditya Birla group and Hindustan Petroleum Corporation, the joint owners of MRPL, had agreed to ONGC acquiring a 51 per cent stake with an investment of Rs 660 crore. Under this agreement, ONGC would acquire the entire 37.4 per cent stake owned by the A V Birla group and infuse fresh equity to raise its stake to 51 per cent which will give it management control of the company.
Post restructuring, HPCL’s stake would fall to 16.9 per cent. Lenders would have about 20.8 per cent while public holding would come down to 11.3 per cent.
Sources said the petroleum ministry had cleared the plan and prepared a note for Cabinet approval but the finance ministry had intervened and wanted to vet the proposal.
MRPL is a state-of-the-art refinery set up with Japanese expertise. With its acquisition, ONGC will now be able to move towards becoming an integrated oil company on the same lines as other global majors.
Returns from the downstream marketing and refining segment will help it hedge the more risky business of oil exploration. This is especially so as ONGC will now be moving into high-cost deep sea exploration.