The Hindu : ONGC to buy Birla stake in MRPL

Online edition of India's National Newspaper
Friday, Aug 02, 2002

Business

Business

ONGC to buy Birla stake in MRPL

By Our Special Correspondent

MUMBAI AUG. 1. The Aditya Birla group has announced its intent to divest its entire 37.38 per cent equity stake in Mangalore Refinery and Petrochemicals (MRPL) for an aggregate value of Rs. 60 crores, representing a value of Rs. 2 per share to the Oil and Natural Gas Corporation (ONGC).

The boards of the Aditya Birla group of companies, Grasim (with 18.92 per cent), Hindalco (12.04 per cent), Indo Gulf Corporation (1.27 per cent) and Indian Rayon (5.16 per cent) have approved of the transaction, which will be completed on a spot delivery basis on receipt of regulatory and statutory approvals, stated a press release issued here today by the Aditya Birla group.

"The strategic decision of the group to divest its equity stake in MRPL was based on lack of leadership position in the sector, no presence in marketing of petroleum products, especially transportation fuels, and no significant synergies with other group companies," it stated. The decision is also in line with the recommendations of the Boston Consulting Group where the equity investment in MRPL was identified as "non-core".

It stated that MRPL's refinery was conceived and configured when the Administered Price Mechanism (APM) was in place. The early dismantling of APM in 1998 has given MRPL only two years of operations in APM business environment compared to the twelve years for any other green field refinery. In addition, the surplus product position in the country, low gross refining margin in the Asian region, deteriorating liquidity and leverage position of MRPL is hampering the operations of MRPL.

According to sources MRPL is having a debt burden of around Rs. 5,500 crores. Further, MRPL's joint management structure has adversely impacted the business competitiveness and constrained its adaptation to the new liberalised business environment. "These factors have resulted in MRPL incurring huge losses for the last three years including Rs. 492 crores for the year ended March 31, 2002," it stated.

The boards of the Aditya Birla group companies have in-principle approved the exit from MRPL. The group has been discussing continuously for quite some time with various potential acquirers, investors including international oil majors who had evinced interest in the company. "Finally discussions with ONGC, the company with the largest market capitalisation and the highest profit making company in India, have been successfully concluded,'' the group stated.

MRPL is the first joint-sector refining company in the oil sector incorporated based on a tripartite MoU among the Central Government, Hindustan Petroleum Corporation Ltd and the Aditya Birla group. The group contributed in the successful commissioning of the refinery and over the last decade has also seen the capacity expansion of the refinery from 3.69 million tonenes to over 9.69 million tonnes per annum. Since its inception, the group has contributed Rs. 471 crores towards MRPL's equity.

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To begin oil marketing shortly

NEW DELHI, AUG. 1. The public sector oil exploration and production major, Oil and Natural Gas Corporation (ONGC), will become the first integrated oil and gas company in the country after acquiring majority shareholding in MRPL. Indications are that ONGC will shortly begin the process of oil marketing by setting up retail outlets for petroleum products in select parts of the country.

A conditional share purchase agreement (SPA) was signed between ONGC and ABG companies for ONGC's acquisition of equity. The SPA is subject to conditions precedent of the tripartite memorandum signed in June 1987 between the Government, Hindustan Petroleum Corporation Limited and ABG being rescinded.

A company release says an understanding has been reached by ONGC and HPCL on the former company taking over management and control of MRPL.

The consortium of lenders to MRPL with ICICI in the lead have welcomed this acquisition by ONGC and have conveyed agreement in principle for debt restructuring of MRPL. Consequent to this restructuring, ONGC will acquire majority equity stake of 51 per cent in MRPL. HPCL will continue to be respresented on the reconstituted board of the company, it is stated.

MRPL is built on state-of-the-art technology, including capability to meet Euro-II norms for transportation fuel quality. It has been facing financial distress because of low capacity utilisation and excessive leverage.

ONGC has already been granted marketing rights for transportation fuels by the Government in May this year on the condition that assured sourcing of products is to be arranged. With the acquisition of MRPL, the release points out, this condition has been met.

The grant of marketing rights and the acquisition of MRPL are major steps in transforming ONGC into an integrated oil and gas corporate.

The company today leads all Indian corporates in market capitalisation and net profits. This strategic initiative, it is stated, conforms to the charter of the Navratna companies that the Government will identify public sector enterprises with competitive advantages and support them in their drive to become global giants.

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