Will fund Mozambique deal via dollar debt: Oil India

ONGC Videsh Ltd (OVL) and Oil India have acquired Videocon's 10 percent stake in Mozambique gas field in a deal valued at USD 2.48 billion.

The deal is expected to close in Q4, 2013 in which Oil India will hold 4 percent and OVL will have 6 percent in the venture. In an interview to CNBC-TV18, Sunil K Srivastava, CMD, Oil India said that his firm plan to fund Mozambique buy via dollar denominated debt. Read This:  Hold ONGC, may rally upto Rs 330: Sharmila Joshi Meanwhile, the field's area 1 covers about 2.6 million acres in the deep-water Rovuma Basin offshore Mozambique and represents the largest gas discovery offshore East Africa with an estimated recoverable reserves of 35 to 65 Tcf (trillion cubic feet). The deal is subject to approvals of the governments of Mozambique and India, relevant regulatory approvals, pre-emption rights and other customary conditions. Below is the edited transcript of his interview with CNBC-TV18: Q: Could you run us through the contours of the deal, as it has been finalised? A: I must say for me it is a very proud moment and for India as well as jointly for Oil India (OIL) and ONGC Videsh (OVL). Today we have today signed the definitive agreements in Singapore with Videocon Mauritius Energy to acquire the 100 percent of their shares in Mozambique Rovuma 1 field where they hold about 10 percent participating interest. It is a very important emerging gas bearing area in the world and we have signed this 10 percent for USD 2.475 billion. This will enrich our country’s energy security. Our country needs a lot of gas in the coming years. Q: If you could tell us the exact details. How much has OIL bought and how much has OVL bought? The earlier contours of the deal were that six percent maybe bought by OIL? Could you confirm that? A: In this 10 percent, OIL will hold four percent and OVL will hold six percent. Q: At this point you will have four percent out of this 10 percent stake, are there any plans to increase this stake any further in the due course? A: Not as of now. As of now it stands. Out of this 10 percent what we have bought together, we have four percent and OVL have six percent. _PAGEBREAK_ Q: Now you will need about a billion dollars to fund this because this USD 2.5 billion is for 10 percent and as you said you will be buying four percent, so where will this money come from, will this be entirely the internal accruals, will you be using cash at hand which is quite significant or will you be going for some debt as well? A: We are as such cash rich company but we plan to get money funded primarily through US dollar-denominated debt, which will be raised at an offshore subsidiary level with OIL parents’ guarantee. Q: In the past there has been a bit of pressure on OIL to use its cash reserves for acquisition or to pay high dividend that will benefit the government as well. Are you saying you will be going entirely for debt to fund for this particular acquisition? A: It will be in many parts. We want to take major share through dollar-denominated funding. The cash (on books) is actually net; balance comes whatever is a debt and then whatever is cash in hand. Q: What does that do to OIL's production because in Q4 and in last financial year that was the big disappointment in terms of your overall production and your overall volumes? By how much do we see an uptick going forward, will it start reflecting in your numbers immediately from FY14 basis? A: Last year in one of those earlier interviews I also said that - our major oil and gas producing fields in Assam we have faced a very large number of law and order problems. We took this matter with the highest authority both at the state level as well as the central level and now Government of Assam has come up in a very nice way. They are in the process of appointing some functionaries especially dedicated to OIL's areas of operation and with this the things have already started looking up. Our production will now from this quarter, in fact from second quarter onwards it will start looking up. Q: My point was that how much will this particular acquisition add, forget about your domestic problems and the fact that you are working on it. Just this particular acquisition, in terms of percentage how much will it add to your overall volumes and production? A: I think out of this say 35 trillion cubic feet (TCF) we have won about four percent of this. So, four percent of this will be our share and in due course of time once the development plan is submitted and all that is done, this production numbers will come. Q: There is a bit of a worry from the analyst community that for OVL in particular, because ONGC is a relatively larger company. For OVL, this is a slightly expensive deal, works out to around Rs 90 a share for Oil India and you will have to go for fairly large leverage. What would you want to say to that, in terms of the deal being quite expensive because some analysts believe that maybe USD 1.5-1.6 billion would have been a fair estimate of the 10 percent stake? A: First thing about the OVL, I would not be able to comment, that question you can raise to OVL. But we have gone through a very rigorous due diligence - technical, commercial, financial and legal and the price which we have arrived at is a very good price. So, I would not say that this is an expensive number. As far as we are concerned, we have gone through a series of due diligence, both OVL and Oil India, then we have compared our numbers. Then we have arrived at these numbers.