Mittal may buy 49% in HPCL's refinery

India-born billionaire Lakshmi N Mittal may take 49 per cent stake in Hindustan Petroleum Corp Ltd's under-construction $3 billion refinery at Bhatinda in Punjab.

State-run Oil India Ltd is likely to get 15 per cent equity stake, leaving HPCL with 36 per cent.

"Mittal Investments and HPCL are close to signing a joint venture agreement for jointly building the 9 million tonnes a year Bhatinda refinery by 2011," an industry source said.

As per the broad understanding reached between the two firms, Mittal will hold 49 per cent stake in the Guru Gobind Singh Refinery Ltd, the company implementing the project.

HPCL will also hold 49 per cent stake if OIL, which is doing due diligence of the project, does not join the refinery project. In case OIL does not join, the remaining two per cent stake would be offered to financial institutions, he said.

"Initially, discussions centred around HPCL-Mittal-OIL holding stake in the project and offering the rest through an initial public offering closer to commissioning of refinery in 2011. Now, the equity pattern has undergone a change. The IPO may be considered at a later date," the source said.

Mittal Investments is wholly owned by the Mittal family and is registered in Luxembourg. It holds 38 per cent in Mittal Steel Company, the Netherlands-based flagship company of the L N Mittal Group. Officials of both Mittal Investments and HPCL could not be immediately reached for comments.

The source said the Mittals may extend the partnership with HPCL to include participation in the expansion of 7.5 million tonnes a year Vizag refinery in Andhra Pradesh and joint pursuit of oil assets abroad.

Mittal is the latest of a series of potential joint venture partners HPCL has had for the Bhatinda refinery. BP Plc of UK walked out of the project in March 2006. Earlier, Saudi Aramco of Saudi Arabia had exited the project in 1998.

HPCL-Mittal combine would also lay a 1,100-km crude oil pipeline from Mundra port in Gujarat to Bhatinda and build a crude oil terminal and associated facilities at an estimated cost of $600 million.

The source said once a joint venture agreement was signed, Mittal Investments would be required to deposit $100 million in an escrow account. The amount could be withdrawn only if the government did not approve of the joint venture.

The approval of the Foreign Investment Promotion Board and Cabinet Committee on Economic Affairs are pre-requisites to the formation of the joint venture as both the companies would invest over Rs 1,000 crore (Rs 10 billion).

HPCL has already invested about Rs 500 crore (Rs 5 billion) in the Bhatinda project. In the event of a possible divestment or relinquishment of stake by HPCL, Mittal Investment will have the option to buy the shares held by HPCL at a price determined by experts.

Should Mittal Investment decline, then the shares can be sold to a third party. Further, if Mittal Investments decides to divest their shareholding, then HPCL has the Right of First Refusal on the shares through a similar mechanism.