ONGC Videsh (OVL) and Oil India have inked a pact with Videocon Industries to buy its stake in a Mozambique gas field for USD 2.47 billion. OVL would be looking at a mix of two options to fund the deal - a part would come from ONGC's surplus cash balance and a part would come from external commercial borrowing (ECB).
We have the option to draw from ONGC's surplus cash balance as well as we have also the option to borrow from the international market.
D K Sarraf
ONGC Videsh (OVL) and Oil India have inked a pact with Videocon Industries to buy its stake in a Mozambique gas field for USD 2.47 billion . Talking about this, D K Sarraf, managing director, OVL, says the total initial financial implication of this deal for the company is expected to be little less than USD 1.5 billion.
He says the company would be looking at a mix of two options to fund the deal - a part would come from ONGC's surplus cash balance and a part would come from external commercial borrowing (ECB). The first production from this field is expected to commence in late 2018, he says.
Below is the edited transcript of his interview with CNBC-TV18
Q: Oil India told us that they will be going for debt to fund this acquisition. What about ONGC Videsh (OVL) will you be using cash at hand or will you be also going for debt?
A: The total initial financial implication of this deal for us is expected to be little less than USD 1.5 billion. Our holding company Oil and Natural Gas Corporation (ONGC) has significant amount of cash with them which is more than this.
So, we have the option to draw from ONGC’s surplus cash balance as well as we have also the option to borrow from the international market. We would weigh both the options and decide on our strategy for funding the assets in course of time.
However I expect that it is going to be a mix of the two a part would come from ONGC and a part would come from external commercial borrowing (ECB).
Q: Can you give us just a ballpark on how much might you dip into the existing cash? Will it be 60-80 percent?
A: It is difficult to say at the moment. It will depend on how the markets are behaving because we would go to the market for borrowing. However we are not going to the market as distressed borrowers because we have significant cash with us.
Q: By when do we expect some kind of production from these fields, because there is a bit of a talk in the market that it will be around five years before we have first exploration out of those fields. If you could tell us by when will you see added impact to production?
A: We expect that the first production from this field would be there in late 2018. So, it is going to be five years or little more than that.
Q: Is the intention to sell it in India or are you looking for international buyers as well?
A: We expect this LNG to come to India. ONGC itself wants to have an LNG terminal in Mangalore. So, it is very much possible that this LNG is destined to come to Mangalore.
Q: What is the volume of flow in 2018 itself or is it too early to speak about the volume?
A: We should have about 3-5 million tonne of LNG from Mozambique to India. We would try to bring it in 2018 itself.
Q: The question that I asked Oil India as well. Some concern on the valuations because a lot of analysts believe that may be USD 1.5-2 billion would have been a fair estimate especially considering the fact that you have seen quite a bit of depreciation of the currency as well. So, in rupee terms now there will be quite a bit of outflow and considering that the cash flow from the deal would only start in 2018, what made you go for what looks like slightly expensive deal?
A: To me it does not appear to be expensive at all. We have done our valuation and we have relooked at that. We have been quite conservative in many of the assumptions which we made. Oil India and OVL have separately done the valuations. It has also been seen by the respective bankers and also importantly there is a benchmark transaction which happened few months back from the same asset 8.5 percent was sold.
Q: Should we hear anymore acquisitions shortly from you either LNG gas or shale gas?
A: We are always on the lookout for new acquisitions. I cannot say that you will not hear any further acquisitions from us. It all depends, it is very difficult to predict what is going to happen. We are working on couple of things, so I would hope that something should come, but one can't be very sure about these things.
Oil India stock price
On September 19, 2014, Oil India closed at Rs 609.35, down Rs 19.2, or 3.05 percent. The 52-week high of the share was Rs 668.80 and the 52-week low was Rs 432.90.
The company's trailing 12-month (TTM) EPS was at Rs 53.63 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 11.36. The latest book value of the company is Rs 344.48 per share. At current value, the price-to-book value of the company is 1.77.
READ MORE ON ONGC Videsh , Oil India, Videocon Industries , Mozambique gas field , USD 2.47 billion, D K Sarraf, fund , surplus cash balance , external commercial borrowing
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