Oil & Natural Gas Corporation (ONGC) may need fresh Cabinet approval for acquiring UK-listed Imperial Energy Plc as fall in international crude oil price had drastically brought down the returns on the 1.4 billion pound investment.
ONGC Videsh's (OVL) 1,250 pence a share bid gave the company a 10 per cent internal rate of return (IRR) taking crude at $121 a barrel but with rupee depreciating by 20 per cent against the dollar and crude falling to around $40 a barrel the IRR has come down to 3-4 per cent.
"As IRR has plummeted, fresh Cabinet approval may be required," an official said. Given the changed circumstances, there is a rethink in the government but OVL top brass feels there is no going back.
OVL, the overseas arm of ONGC, has time till tomorrow to make an offer to Imperial shareholders to acquire all outstanding equity shares.
Stating that the fall in crude prices had changed valuations of Imperial, the official said, OVL has taken legal opinion on revising the price and has been advised that the "binding offer" cannot be changed at this stage.
UK Takeover Commission can levy penalties and "force" the Indian firm to complete the acquisition, OVL has told the government.
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"OVL has told us that they can't go back on the deal now as it will hurt their reputation and there are legal implication," he said.
An Empowered Committee of Secretaries had last week deliberated on the issue but deferred a decision as OVL may revise its offer price downward.