State-owned oil marketing company (OMC) Hindustan Petroleum Corporation Limited (HPCL) generated heated debates when it chose not to recognise ONGC as its parent even after the latter bought 51% stake in HPCL from the government for ₹37,000 crore. HPCL’s chairman and managing director Mukesh Kumar Surana explains the position. Edited excerpts:
What is the status of ONGC’s acquisition of HPCL?
As far as the acquisition is concerned, on 31st January the government has transferred its 51% stake to ONGC. So, the transaction is complete.
HPCL created a controversy by not recognising ONGC as parent...
The controversy is created by the people who are reading different pieces of inputs and then trying to put it together. There are certain definitions as per the Companies Act, as per SEBI, based upon which various companies, when such transaction happens, are supposed to perform.
I would like to clarify that we have served the clarifications and I don’t see any controversy to that effect. Ultimately, whatever is correct [information] should go to the exchanges. Actually, it does not matter materially in the functioning.
The promoter control/holding is not decided by the shareholders. There is a definition. We have already done some filings and asked for clarifications. We have made the filing as per our understanding of the statute.
You have retained the position of CMD of HPCL while the corporate governance structure requires having just one chairman for the group and subsidiaries headed by MD and CEOs...
It’s not for me to decide. The director and chairman of all public sector companies, irrespective of whosoever is the owner, will be decided by the government.
Even for OVL, which is the wholly-owned subsidiary of ONGC, the directors are decided by the government. Actually, its not even important if I am the chairman or not. Basically, the question is on the autonomy for the function. Things should be decided based on the rationale and not the envelope.
Most government energy firms have got the Maharatna status. When can we expect HPCL to get such a status?
We are qualifying on all the eligibility criteria for Maharatna status and we have made an application for the same. There is a process that we need to go through and it involves various Ministries. There are defined powers after getting the Maharatna status. Basically, it relates to decision making for projects. Up to which level you can decide at board level and at which level you need go to the government.
So, after getting Maharatna tag, will you be on par with ONGC?
There is no question of being at par or not at par. Both companies are individually managed by their own boards. Today also we take our own decisions and tomorrow also we will take our own decisions. To some extent, beyond a particular level, we need to go to [the] government, which will also reduce after getting Maharatna status.
You mean to say that ONGC, even after becoming HPCL’s promoter, can’t influence your decision-making?
The question is that in any case, you can’t influence the decision-making in a public listed company because it has to be taken by the board.
Otherwise, it will not be considered correct as per law itself. The ownership and management are treated at arm’s length in listed companies. What you are talking is applicable to the non-listed companies. Listed companies will have to be managed by the company’s board as per SEBI guidelines and Companies Act.
MRPL has always been the bone of contention between co-promoters ONGC and HPCL. How does the equation change now?
It has never been the bone of contention. Controlling stake is a different issue and control is a different issue. You can hold control even after having a 5% stake. One thing is that the total management of the things should be based upon the pure skill sets. ONGC and HPCL have different skill sets and different focus areas. They (ONGC) focus on upstream and we focus on downstream.
It is recognised that we are in a better place to handle that (MRPL) in terms of skill sets, in terms of synergies. Now, the question is either you continue with two different subsidiaries or you have one downstream subsidiary.
How much stake in MRPL do you want to buy from ONGC, given that you already have 17% and ONGC, 71%?
We have around 17% stake in MRPL, around 13% is with the public and the rest is with them (ONGC) that we need to buy out.
If we have to buy, we will buy the entire [around] 71% stake owned by ONGC unless they (ONGC) want to remain as strategic investor, which doesn’t make any sense.
How do you justify MRPL’s acquisition to the ONGC, government and shareholders?
As far as MRPL is concerned, we are in talks with ONGC. Three entities ONGC, HPCL and MRPL are involved, so it needs approval of the all the three boards as we are consolidating within one group. There is a general thought between all the connected parties that HPCL sells more than what we produce and MRPL doesn’t have significant retail presence, so it’s a strategic fit. MRPL acquisition will give us economies of scale. We can’t get VLCCs (Very Large Crude Carriers) on the west coast to get crude to our Mumbai refinery but we can do that in Mangalore. We have R&D facility in Mangalore, it can be used. It gives an optimised logistics advantage.
What happens to MRPL retail outlets and what impact will it have on your balance sheet?
With MRPL, HPCL’s synergies come by merging both the companies so there will be no two companies. We have 15,000 outlets and they have just six, so they will re-branded as HPCL retail outlets. It is within the group so we will look at most efficient way of doing it. We need to ensure that everybody gains in the process. Funding is not an issue as we have a conservative debt to equity ratio and the acquisition will add to our bottomline. We have got a threshold for debt servicing ratio and we are capable of doing it.
