ONGC board to consider OVL listing but IPO ruled out in near future

OVL has assets in countries like Venezuela, Iran, and Sudan, which are exposed to some or other western sanction

The ONGC board will this week consider a demand from the government to list its overseas investment arm ONGC Videsh on bourses, but an IPO of the firm is ruled out in near future as it will have to first separate assets in sanction-hit nations and take approval of lenders.

The Oil and Natural Gas Corp (ONGC) board is meeting on December 20 and 21 to consider among other things a share buyback.

The board will also be appraised of a demand from the Department of Investment and Public Asset Management (DIPAM) for the listing of OVL, sources with direct knowledge of the development said.

The listing, which will involve an initial public offering (IPO) being floated, may not happen in near future for multiple reasons. These range from markets are not being right for an oil and gas exploration and production company to list, to complexities involved in getting a firm like OVL to be listed.

OVL, sources said, has assets in countries like Venezuela, Iran, and Sudan, which are exposed to some or other western sanctions.

These assets will have to be first separated from the company. While this may not be a difficult task, but it would involve issues of capital gains and tax thereon, they said.

Also, OVL is heavily under debt and such a move would require taking approval of all the lenders - yet another tedious job.

A third of its $28.45 billion (Rs 1.51 trillion) investment in 41 projects in 20 countries has been financed by loans.

More importantly, OVL has been only in acquisition mode till now and hasn't yet reached a last economic model where it can stand on its own feet. The company is dependent on its parent for even guarantees for taking loans.

OVL has great assets and it would reach that economic model once couple of its assets like the giant gas field in Mozambique starts production, they said.

Sources said the matter being put up before the board is more of an academic exercise and may not necessarily translate into a decision on listing.

OVL projects are in the development stage and an IPO will get the best value when these projects are monetised, they said.

OVL's giant gas field in Mozambique will start production sometime in 2022 when two LNG trains of 12 million tonnes per annum capacity are set up and gas exported in cryogenic ships.

Its Farzad-B gas field in Iran is on hold in view of US sanctions on the Persian Gulf nation. Also, its Venezuelan oilfields are producing much less than their potential, he said.

According to a letter the Department of Investment and Public Asset Management (DIPAM) wrote to ONGC management in August that the listing of OVL would help unlock value by improving its corporate governance and efficiency.

ONGC had helped the government meet its disinvestment target last fiscal when it bought a 51.11 per cent stake in state-owned Hindustan Petroleum Corp Ltd (HPCL) for Rs 369 billion.

After failing to find a buyer for Air India, DIPAM is again looking at ONGC to meet the Rs 800 billion revenue mobilisation target set out for it in the Budget for 2018-19 from the sale of government stake in PSUs.

OVL, which is 100 per cent owned by ONGC, has so far invested Rs 1.5 trillion ($28.36 billion) in 41 projects it has across 20 countries.

In the letter, DIPAM said PSUs with a positive network and no accumulated losses should be listed to unlock value.

It, however, did not state how much stake in OVL should be sold for its listing.

Market regulator Sebi calls for a minimum 25 per cent public float for a listed company.

Sources said proceeds of a potential listing of OVL would accrue to its parent ONGC but the government would seek a special dividend to reap that.

The government owns 67.45 per cent in ONGC. If ONGC were to declare entire proceeds of OVL listing as a special dividend, the government would get 67.45 per cent of it.

The government had in 2015 as well asked ONGC to list OVL. But the state-owned firm had at that time told the government that it was not the right time to list as oil prices were subdued and the company would not get the right value.

Oil prices have since rebounded and the government is looking to cash in on that.

Under its portfolio, OVL has reserves of 711 million tonnes of oil and oil equivalent natural gas.

In 2017-18, it produced 9.35 million tonnes of crude oil, up from 8.43 million tonnes in the previous year. Together with natural gas, the output was 14.16 million tonnes of oil equivalent, up from 12.80 million tonnes in the previous year.

It reported a net profit of Rs 9.81 billion on a turnover of Rs 104.18 billion in 2017-18 fiscal. This compared with a net profit of Rs 7.01 billion on a turnover of Rs 100.80 billion in the previous fiscal.

It had reported a net loss of Rs 36.33 billion in 2015-16 due to a sharp drop in oil prices.