Govt recognises ONGC as HPCL's promoter after 15-month impasse

New Delhi: Hindustan Petroleum Corp Ltd (HPCL) has for the last 15 months refused to recognise its majority shareholder ONGC as its promoter but the government has now for all practical purposes started giving the company its due recognition.

Government headhunter Public Enterprises Selection Board (PESB) on June 17 called ONGC Chairman and Managing Director Shashi Shanker to assist in selecting the new Director (Finance) of HPCL, a move seen as a stamp of approval for ONGC being the parent of HPCL, sources in know of the development said.

Oil and Natural Gas Corp (ONGC) in January last year bought the government’s entire 51.11 per cent stake in HPCL for Rs 36,915 crore. HPCL thereafter became its subsidiary but HPCL management has continuously refused to recognise ONGC as its promoter.

In regulatory filings for five consecutive quarters, HPCL listed “President of India” as its promoter with “zero” per cent shareholding. ONGC was listed as “public shareholder”, owning “77.88 crores” shares or “51.11 per cent” shareholding of the company.

Sources said the chairman of ONGC, as a result of it being the holding company of HPCL, by rule was invited to be on the interview panel to select the director and that would in a way end all the wrangling over the promoter issue.

HPCL Director (Finance) J Ramaswamy retired on February 28 and interviews for the post held by PESB on June 17 selected R Kesavan, who currently is an executive director in HPCL, according to a notice put out by the government headhunter.

For selecting the director of a company where the government or its controlled company has more than 50 per cent stake, a PESB panel interviews shortlisted candidates. The panel is assisted by the Secretary of the administrative ministry and the chairman of the company concerned.

The Department of Personnel guidelines state that “in the case of subsidiaries, the full-time Chairman of the holding Company is invited to assist the Board.”

Sources said going by these guidelines, ONGC Chairman and Managing Director was invited to sit on the interview panel to select HPCL Director (Finance). HPCL Chairman and Managing Director M K Surana, who till now used to sit on the interview panels to select directors of the company, was not called.

They said Coal India Ltd’s governance structure, which the HPCL management has so often cited, clearly provides for the holding company chairman to sit on the panel for selecting directors of subsidiary companies.

Coal India Ltd is a holding company and has seven subsidiaries. The board of each of the subsidiaries is headed by a chairman and Coal India too has a chairman and managing director to head the board. But on PESB interview panels to select a director or chairman of subsidiary companies, Coal India CMD is invited.

Sources said the government had earlier this year asked HPCL to add ONGC as its co-promoter but the oil refining company sought to delay it by seeking further clarifications.

While the promoter tag does not bring any specific privileges to ONGC, a lack of it keeps it out of insider trading regulations as it get full agenda of every board meeting of HPCL and can be aware of price sensitive information.

ONGC, which had to borrow Rs 24,876 crore for the acquisition that helped the government meet its disinvestment target for the 2017-18 fiscal, first raised the issue of being formally recognised as a promoter of HPCL in August last year.

When the issue first arose in August 2018, Oil Minister Dharmendra Pradhan had clearly stated that ONGC is the new promoter of HPCL.

ONGC, he had said, had invested in acquiring a majority stake in the company and so it is the promoter. “ONGC is the promoter of HPCL,” he had said.

According to the Securities and Exchange Board of India’s rules, the entity that owns the controlling stake should be listed as promoter even if it was not the original promoter of the company.

When Indian Oil Corporation (IOC) had bought the government’s stake in fuel retailer IBP Co Ltd, it was listed as the latter’s promoter in every instance after the deal. The same was the case when IOC acquired a majority stake in Chennai Petroleum Corp Ltd (CPCL).

HPCL Chairman and Managing Director M K Surana has retained the title of CMD despite corporate governance structure require a group having just one chairman and subsidiaries being run by managing directors and CEOs.

ONGC’s overseas subsidiary, ONGC Videsh Ltd, is headed by a Managing Director and CEO. Its refinery subsidiary Mangalore Refinery and Petrochemicals Ltd (MRPL), which is listed on BSE, too is led by a Managing Director and CEO. ONGC Chairman is the head of boards of both the companies.

Since acquiring a majority stake in HPCL, ONGC has only been able to appoint one director to that firm’s board.