February 5, 2019:
In public filings of its shareholding pattern, HPCL identifies the President of India with zero stake as the promoter & ONGC with 51.11% stake as a public shareholder.
The government has directed Hindustan PetroleumNSE -3.21 % to acknowledge ONGC as a promoter in regulatory filings in a move aimed at ending the year-long slugfest between the two companies that has obstructed synergy gains from the Rs 37,000-crore acquisition deal, according to sources familiar with the matter.
HPCL management has repeatedly blocked ONGC’s attempts to assert its authority: ONGC chief can’t chair HPCL board, as he does in case of other subsidiaries, or intervene in the matters of HPCL. The cold relations between the two firms has also pushed HPCL-MRPL merger plans to the backburner, according to sources.
In public filings of its shareholding pattern, HPCL identifies the President of India with zero stake as the promoter & ONGC with 51.11% stake as a public shareholder. By being classified as a public shareholder, not promoter, ONGC risks losing the regulatory exemption from making an open offer to other shareholders of HPCL as part of the deal, sources said. An open offer for an additional 26% stake in HPCL at the deal price could cost ONGC about Rs 19,000 crore.
The exemption had come on the ground of the deal being a share transfer between promoter entities.
The deal that helped the government exceed its divestment target last fiscal year finished up all of ONGC’s cash then, burdened it with debt after many years & left it with an acquisition it couldn’t fully control. ONGC has just one nominee on HPCL’ board & its frequent rants on the issue of promoter has been ignored by its subsidiary.
The oil ministry too has been slow to respond to the matter. But persistent representations by ONGC, & a view from the law ministry have now prompted the oil ministry to issue a directive to HPCL to recognise ONGC along with the President of India as promoter, according to sources.
“After supervising the wedding, the government should have left the room & allowed the couple to handle things on its own. But it hasn’t,” a source said on how the government still deals with HPCL as if it still owns a majority stake in it.
Emailed queries to the oil ministry, ONGC & HPCL remained unanswered till the time of going to the press. But an ONGC executive said his company must be recognised as the promoter since it owns majority stake in HPCL.
The bitterness has spread to other spheres as well. The two firms recently quarrelled over the selection of candidates for the position of a director on the board of HPCL. The Public Enterprises Selection Board, the government’s head hunter, shortlists a dozen applicants for interview, of which half are ‘internal’ candidates. The board considers an applicant from a holding company as an ‘internal’ candidate for a post in its subsidiary. ONGC wanted its executives considered ‘internal’ for this job but HPCL opposed it, sources said. The oil ministry is learnt to have backed the HPCL’s stand on this.
HPCL’s position on its promoter is vulnerable to legal challenge. The market regulator had exempted ONGC from making an offer under the section 10(1)(a) (iii) of its takeover code, which allows transfer of controlling stakes between promoter firms without triggering open offer by the acquirer.
Classifying ONGC as a public shareholder can trigger an open offer by ONGC for an additional 26% stake in HPCL.
Promoter, as defined in the Companies Act, 2013, is someone who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise. As a shareholder with a majority stake & voting rights, ONGC meets this criterion of being a promoter to HPCL.