OVL gets nod from Russia for Imperial buy

Oil and Natural Gas Corporation (ONGC), India’s largest oil producer, today received approvals from the Russian authorities for acquiring UK-listed Imperial Energy, which has oil producing assets in Siberia and north Kazakhstan.

ONGC Videsh (OVL), the overseas subsidiary of ONGC, told the London Stock Exchange that Federal Anti-Monopoly Service of the Russian government has approved the proposed acquisition.

The approvals by two Russian government agencies will now allow ONGC Videsh to make an open offer for the shares of Imperial within the time frame of three weeks, ONGC officials said.

ONGC on August 26 this year agreed to buy Imperial for 1,250 pence per share, taking the total valuation of the company to euro 1.4 billion. Oil prices at that time were around $120 per barrel and have since dropped to $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 the London Stock Exchange.

On September 5 2008, ONGC had applied to two Russian government agencies for approval of the deal. The Federal Anti-Monopoly Service, the Russian anti-trust agency, had earlier this week said that the Imperial oil assets were “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 buy-out of an overseas oil company. However, the company has 36 oil and oil assets in 16 countries after acquiring oil and gas blocks. It also owns 20 per cent in the Sakhalin-I oil and gas producing project in Russia.

OVL will acquire the shares of Imperial through a wholly owned subsidiary called Jarpeno, based in Cyprus.

The delay in the approval has proven to be a blessing in disguise for the Indian company as it would save half-a-billion dollar. As the UK currency has depreciated by a 20 per cent against the dollar, to $1.58 from $1.98 dollar in August when the deal was announced, the transaction value would come down to around $2.1 billion as against the original estimate of $2.6 billion.

Under the agreement, ONGC has committed to pay in sterling, which has depreciated significantly since then, sources said.

ONGC Videsh, the overseas arm of ONGC, has already acquired over 15 per cent stake in Imperial Energy, including 6.4 million shares representing 6.3 per cent from the management and another 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 loans from banks are not only becoming expensive but access to these loans are also becoming difficult.