State-owned Oil and Natural Gas Corporation (ONGC) is confident that it would close the proposed acquisition of the UK-listed Imperial Energy after having received the go-ahead from the anti-trust agency of Russia — Federal Anti-Monopoly Service — within the given timeline of June 30.
Since major approvals are already in place, senior officials of ONGC and its advisors Deutsche Bank said that the rest of approvals were more of formalities. The Russian authorities have already given approval on two counts: one, the assets owned by Imperial Energy are ‘not’ strategic in nature and two, the acquisition would not create monopolistic environment. The only approval that is now needed is the proposed investment in Russia after the deal, sources said.
“More importantly, under the Takeover Code of United Kingdom, it would be simply impossible for the ONGC to either re-negotiate the price or walk out from the transaction,” sources in the investment banking said. Secondly, ONGC Videsh Ltd, the overseas investment arm of ONGC has already acquired 15 per cent stake in Imperial Energy.
“ONGC of its own cannot renegotiate or walk out of the deal. The only way to wriggle out from the deal is, if the Russian Authority does not give approval,” sources in the investment banking said.
On the other hand, the delay in the approval has proven to be a blessing in disguise for the Indian company as it would save half-a-billion dollar. As the UK currency has depreciated by a whopping 20 per cent against the dollar, to 1.58 dollar from 1.98 dollar in August when the deal was announced, the transaction value would come down to around $2.1 billion as against the original estimate of $2.6 billion. Under the agreement, ONGC has committed to pay in sterling, which has depreciated significantly since then, sources said.
ONGC Videsh, the overseas arm of ONGC, has already acquired over 15 per cent stake in Imperial Energy, including 6.4 million shares representing 6.3 per cent from the management and another 9.2 per cent from Baillie Gifford & Co.
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Imperial Energy has its oil and gas assets in eastern Russia and north Kazakhstan. It currently produces around 10,000 barrels of oil a day. It hopes to increase the production to 35,000 barrels a day by the end of 2009 and 80,000 barrels a day by 2011.
On the issue of whether the valuation of $2.1 billion is on the higher side, given the fact the crude oil price is currently trading around $60 a barrel, the ONGC official said that the decision of this nature are long-term decisions and cannot be influenced by volatility in the market. “Anyway, the current production of Imperial Energy is insignificant and would increase the production to 80,000 barrels by 2011,” he added.
The Imperial board has recommended ONGC’s bid in August at 1,250 pence a share. At that point Imperial’s share price on the London Stock Exchange was 800 pence and oil prices were over $120 a barrel. Oil prices have since fallen to below $65 a barrel driving down Imperial’s share price to around 800 pence late last month.