Oil and Natural Gas Corporation (ONGC), India’s largest oil producer, today said its overseas unit will bid for UK’s Imperial Energy within the next three weeks. The company said this soon after receiving approval from Russian authorities for acquiring Imperial, which has oil producing assets in Siberia and north Kazakhstan.
ONGC Videsh (OVL), the overseas subsidiary of ONGC, told the London Stock Exchange (LSE) that the Federal Anti-Monopoly Service, Russia’s anti-trust agency, has approved the proposed acquisition. The approval by two Russian government agencies will now allow ONGC Videsh to make an open offer for the shares of Imperial within three weeks, ONGC officials said.
ONGC had on August 26 agreed to buy Imperial for 1,250 pence per share, taking the valuation of the company to ¤1.4 billion. Oil prices at that time were around $120 per barrel and have since dropped to below $60 per barrel. “OVL has been granted approval in respect of the ownership of Russian entities by entities controlled by a foreign government. On the above basis, OVL confirms that both of the pre-conditions to the offer have been satisfied,” OVL told LSE.
On September 5, ONGC had applied to two Russian government agencies for approval of the deal. The Russian anti-trust body had earlier this week said that Imperial oil assets were “non strategic” and ONGC’s acquisition of the assets would not result in a monopoly.
Another government commission today approved the “ownership of Russian entities by entities controlled by a foreign government.”
This acquisition, once completed, would be ONGC’s biggest buyout of an overseas oil company. At present, ONGC has 36 oil and oil assets in 16 countries. It also owns 20 per cent in the Sakhalin-I oil and gas project in Russia.
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OVL will acquire Imperial shares through its Cyprus-based, wholly-owned subsidiary called Jarpeno.
The delay in the approval has proven to be a blessing in disguise for the Indian company as it would save at least half-a-billion dollar. Under the agreement, ONGC has committed to pay in sterling, which has depreciated by 20 per cent against the dollar since August when the deal was announced. This would bring the transaction value down to around $2.1 billion as against the original estimate of $2.6 billion.
OVL has already acquired over 15 per cent in Imperial Energy — 6.3 per cent from the management and 9.2 per cent from Baillie Gifford & Co.
“We will now rework our funding structure,” said another top ONGC official.
OVL had previously planned to take a $1-billion bridge loan and borrow another $1.6 billion from its parent company at a less-than-market interest rate of 6 per cent. With the dollar valuation coming down, OVL has the luxury to rework the funding at a time when loans from banks were becoming expensive as well as difficult to access.