ONGC Videsh (OVL), the overseas investment arm of India’s largest oil producer Oil and Natural Gas Corporation (ONGC), will buy UK-listed Imperial Energy Plc through a combination of loans from domestic banks and its parent company, a senior ONGC official said.
The official said OVL would raise around Rs 5,000 crore (around $1 billion) loan from Indian banks for which ONGC would be the guarantor. ONGC would also lend OVL, its wholly owned subsidiary, another $1.1 billion to complete the $2.1 billion acquisition of Imperial Energy which has oil and gas assets in Russia’s Siberia and north Kazakhsthan.
“OVL is no longer looking at overseas debts for the acquisition due to the global credit crunch. Further, many domestic banks are willing to lend money to OVL,” a senior ONGC official said.
ONGC will lend $1.1 billion to OVL at a lower-than-market interest rate of 6 per cent. Indian banks are currently giving loans to companies at 12-13 per cent.
ONGC has cash and bank balances of around Rs 22,000 crore, the company’s Chairman and Managing Director R S Sharma said in an interview last week.
ONGC Videsh was earlier looking at raising $1 bln bridge loan from Deutsche Bank, the advisor to the deal, to part-finance the acquisition of the London Stock Exchange-listed Imperial Energy.
Separately, Sharma also said that while OVL would raise $1 billion through a bridge loan, the lender would not be Deutsche Bank.
“We have enough resources and ONGC has the credibility to raise money. So, funding will not be a problem,” Sharma said. Currently, ONGC does not have any debt on its books.
OVL made an open offer to acquire Imperial Energy through its Cyprus-registered subsidiary Jarpeno on Tuesday after a Cabinet panel gave its final approval to the deal.
The offer, at 1,250 pence per share, will be open till December 30, after which OVL will have another two weeks to pay Imperial’s shareholders who decide to sell their shares.
OVL had to seek fresh approval from the Cabinet Committee on Economic Affairs on Tuesday, as the sharp fall in crude oil prices in the past four months has severely eroded the company's expected return on the investment.
A senior oil ministry official said that the earlier Cabinet approval for the deal in August was on an expected internal rate of return of over 10 per cent from the investment. This had fallen to 3-4 per cent after oil prices have dipped by over 65 per cent from the time OVL’s bid was recommended by the Imperial board.
ONGC shares rose 2.65 per cent today on the Bombay Stock Exchange on the day the benchmark Sensex rose 5.37 per cent. Imperial Energy’s share price on the Lond Stock Exchange rose over 7 per cent but is still around 13 per cent lower than OVL’s offer price.
