HPCL Says It Intends To Recognise ONGC As Promoter
Emissions rise from chimneys at the Oil and Natural Gas Corporation Ltd. Uran plant in Uran, Maharashtra, India. (Photographer: Dhiraj Singh/Bloomberg)

HPCL Says It Intends To Recognise ONGC As Promoter


Hindustan Petroleum Corporation Ltd. has agreed to rectify the shareholding pattern to include Oil & Natural Gas Corporation Ltd. as a “promoter” after it got a reprimanded from the Securities and Exchange Board of India for refusing to recognise its majority shareholder.

SEBI asked HPCL to re-file shareholding pattern to stock exchanges by Aug. 13 for all quarters since ONGC acquired government’s entire stake in the refiner in January last year.

“HPCL intends to rectify the shareholding pattern and classification of promoters by the stipulated date as per the direction from SEBI,” the company said in a stock exchange filing, attaching a copy of the letter it received from the regulator on the subject.

The SEBI, in the Aug. 6 letter, asked HPCL to disseminate its letter to the stock exchanges.

ONGC in January last year bought the government’s entire 51.11 percent stake in HPCL for Rs 36,915 crore but continued to be mentioned under “public shareholder” in the filings by the oil marketing company. President of India, in six shareholding pattern filings HPCL made since then, remained as “promoter” without any stake in the company.

SEBI in the letter said it had in a letter dated Sept. 10, 2018 “advised HPCL to re-file the shareholding pattern to the stock exchanges revising the status of ONGC as 'promoter'.”

“Further, as informed by HPCL vide its email dated June 27, Government of India has also advised HPCL that 'President of India' will continue to be the promoter of HPCL and ONGC to be added as a Promoter below 'President of India’. However, HPCL has not abided by the aforesaid direction to revise the status of ONGC as 'promoter' till now,” the regulator said.

The regulator said its response to the informal guidance request was “clear and self-explanatory”.

“Hence any further request for clarification on the issue does not arise,” it said. “Accordingly, you are once again advised to re-file the shareholding pattern to the stock exchanges for all quarters since the acquisition of shares by ONGC, while revising the status of ONGC as a 'promoter' by Aug. 13, 2019, failing which appropriate action will be initiated as per SEBI Act.”

SEBI asked HPCL to place its letter before the board of directors in its next meeting and disseminate the letter to the stock exchanges.

Replying to the SEBI letter, HPCL on Aug. 7 had sought "specific clarifications from SEBI pertaining to procedures and approvals related" to the issue.

HPCL said it has not received "the necessary clarifications" from SEBI and "in order to give effect" to its Aug. 6 direction, "we have no choice but to infer that no further approvals whatsoever is required to be obtained by HPCL from any stakeholder/agency in this regard".

The company said the SEBI’s letter was placed before HPCL board on Aug. 7.

HPCL has continuously refused to recognise ONGC as its promoters and has not list any specific reason for not doing so.

Sources close to ONGC said information technology company Mindtree Ltd. recognised Larsen & Toubro Ltd. as its promoter within a day after the engineering giant acquired a majority stake.

Last month, an HPCL spokesperson had stated that the company needed "clarifications /details" from "multiple agencies/ authorities to ensure compliance to various stipulations applicable to listed companies including Companies Act, SEBI Regulations, etc" before doing so.

"As soon as all the clarifications/details are received from concerned agencies /authorities, necessary amendments as required will be made in the regulatory filings after following due process. Till such time, the status quo is being maintained in the regulatory filings," the spokesperson had said.

While HPCL management has been unrelenting, Oil Minister Dharmendra Pradhan in written replies to questions in Parliament had listed the company as a subsidiary of ONGC.

The government too has been treating HPCL as ONGC subsidiary and its headhunter Public Enterprises Selection Board on June 17, called ONGC Chairman and Managing Director Shashi Shanker to assist in selecting the new Director (Finance) of HPCL.

As of now, HPCL Chairman and Managing Director Mukesh Surana would sit on the interview panels for selecting directors.

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

According to the SEBI’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 Ltd. 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.

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

Sources said Coal India Ltd.'s governance structure, which the HPCL management has so often cited to allow Surana retain the Chairman and Managing Director designation, even though there cannot be two Chairmen within a group, clearly provides for the holding company chairman to sit on the panel for selecting directors of subsidiary companies.

Coal India 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.

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