Decks have been cleared for Oil and Natural Gas Corporation to take over the Mangalore Refinery and Petrochemical Ltd with Public Investment Board on Wednesday giving consent to the Rs 659.4 crore (Rs 6.59 billion) proposal.

PIB accorded approval to ONGC's buying Aditya Birla Group's 37.4 per cent stake in MRPL for Rs 59.43 crore (Rs 594 million) at Rs two a share, highly placed sources told PTI in New Delhi.

Besides, ONGC will infuse Rs 600 crore (Rs 6 billion) additional capital to MRPL. The PIB will now put up a note for Cabinet for rescinding the 1987 tripartite MoU among Governent of India, Hindustan Petroleum Corporation Ltd and ABG to establish MRPL, sources said.

The acquisition, along with debt restructuring, was likely to be completed by March 31, 2003. On ONGC takeover, MRPL would be the only Indian refinery operating on equity crude.

Presently, HPCL and Aditya Birla Group are equal partners in MRPL with 37.4 per cent stake each while the remaining 25.2 per cent is with the public. 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.

When contacted, ONGC chairman and managing director Subir Raha said, "We are happy that PIB has approved our proposal. We hope the Cabinet Committee on Economic Affairs will rescind the current MoU at the earliest as it would take six weeks to complete debt restructuring, necessary before March 31 to avoid part loans to MRPL being converted into NPA."

ONGC, pursuing vertical integration to secure sustained growth, had already got license to retail petrol and diesel and acquisition of 9.69 million tonnes capacity MRPL would give it the assured product.

Sources said debt restructuring was necessary for the loss making MRPL as its debt-equity ratio had climbed to 15:1 and average interest rate continued to be above 13 per cent nothwithstanding softening of interest rates in the market.

"With net worth erosion having crossed 75 per cent, as per September 2002 results, MRPL would become a non performing asset by March 31, 2003 unless restructured," they said.

As per the debt restructuring proposal, Rs 600 crore (Rs 6 billion) additional equity infusion by ONGC would go as a part of the Rs 5,492 crore (Rs 54.92 billion) debt. Besides, the consortium of 15 lenders would convert Rs 278 crore (Rs 2.78 billion) worth of debt into equity and another Rs 122 crore (Rs 1.22 billion) debt into preference shares/zero coupon bonds.

For the remaining debt, the lenders have agreed for a four year moratorium and extension of maturity of loans from 8 to 12 years. Lenders would take a loss of about 30 per cent on their principal on an NPV basis. Average yield on rupee debt has been reduced by about 33 per cent from 13.75 per cent to 9.15 per cent while average life of loans has been extended from 3.6 to 9 years.

After debt restructuring, the det-equity ratio will fall to 2.83:1 and networth would enhance from Rs 343 crore (Rs 3.43 billion) to Rs 1,469 crore (Rs 14.69 billion), sources said.

Sources said 12 out of 15 lenders (ICICI, IDBI, IFCI, State Bank of India, Bank of India, Bank of Baroda, Punjab National Bank, Union Bank of India, State Bank of Hyderabad, Corporation Bank, Vijaya Bank and Canara Bank) holding 92 per cent of the debt to be restructured by value have approved the proposal.

Three lenders (HDFC Bank, Oriental Bank of Comerce and IIBI) holding 8 per cent of debt to be restructured by value are in the process of approval, they said.

ONGC at Wednesday's meeting, argued with gross refining margins would improve from $1.73 per barrel in 2001-02 to $2.79 per barrel in 2012 as a result of full commissioning of entire capacity.

MRPL, the company argued, had decisive economic advantage in Karnataka and Goa as well as South Maharashtra and North Kerala because of the Mangalore-Hasan-Bangalore pipeline (which ONGC acquired recently) and the Konkan railway, they said.

On ONGC takeover, MRPL would be the only Indian refinery operating with crude produced by itself. ONGC presently  produces about 24 million tonnes of crude oil annually.

"Every one million tones of sweet crude (the kind ONGC's Mumbai High field produces) will give advantage to MRPL of Rs 125 crore (Rs 1.25 billion) per annum without any loss to ONGC," the company argued at PIB meeting.

ONGC is required to maintain crude supply to PSUs at 2001-02 pattern during 2002-03 and 2003-04, but has been allowed to maket incremental crude to any Indian refinery. Currently it is producing one million tonnes of incremental crude.

Though ONGC and Aditya Birla Group had on August 1, 2002 signed a Share Purchase Agreement for sale of latter's entire shareholding in MRPL, the deal could not go through as the finance ministry wanted the proposal to go to PIB as the navratna company could not invest more than Rs 200 crore (Rs 2 billion) in a joint venture without the approval of PIB.

However, ONGC said MRPL is not a joint venture to be established but an existing one and hence it does not need any permission from the PIB.

Besides, the PIB route does not apply to ONGC as its investment of Rs 59.43 crore (Rs 594 million) is way below the mandatory Rs 200 crore (Rs 2 billion), the company had argued.

Sources said petroleum ministry too had differed with the finance ministry's decision to refer the deal to PIB saying PIB was referred to only when investments are beyond Rs 200 crore (Rs 2 billion). In this case the equity buy is only for Rs 60 crore (Rs 600 million).

PIB vets proposal where new joint ventures are formed. Presently, ONGC is entering an existing joint venture and hence there was no need for referring the deal to PIB.