The Indian oil ministry is drafting a proposal to merge Hindustan Petroleum Corp Ltd (HPCL) and Mangalore Refinery and Petrochemicals Ltd (MRPL), The Economic Times reported.

The merger between the two companies, which are subsidiaries of state-owned company Oil and Natural Gas Corp (ONGC), was mooted soon after ONGC acquired HPCL in 2018.

The ministry is now looking to realise the merger through a share swap deal, according to people with knowledge of the matter.

The transaction will see HPCL issue fresh shares to MRPL shareholders. It is not expected to involve any cash outlay.

HPCL already owns 16.96% in MRPL, while ONGC owns a 71.63% stake. The remaining 11.42% is held by the public.

The merger will allow ONGC to increase its stake in HPCL from 54.9% currently.

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One source stated that the merger may face a delay until next year as the current regulations stipulate a two-year cooling period between two successive mergers that a company undertakes.

MRPL merged its subsidiary ONGC Mangalore Petrochemicals Ltd (OMPL) with itself last year.

The merger is expected to result in tax gains and consolidate the majority of the downstream assets of the ONGC group under HPCL.

HPCL has a strong retail network and sells more fuel than is produced at its refineries. The transaction will provide the company with in-house access to MRPL’s products.

MRPL exports the majority of its products to retailers outside the state of Karnataka since the company does not have a solid domestic distribution network.

The sale to other parts of the country attracts a central sales tax, which can be avoided if the merger goes through.

ONGC’s acquisition of HPCL was in line with the Government of India’s plan to create oil majors in the country.

Following the acquisition, ONGC became the country’s first vertically integrated oil major company, with presence across the entire value chain.

Earlier this month, there were reports that the Indian government is likely to make an equity investment of Rs300bn ($3.66bn) in HPCL, Indian Oil Corporation, and Bharat Petroleum Corporation Ltd.