Will scale down financial dependence on parent company; has borrowings of over Rs 16,000 crore from ONGC.
ONGC Videsh Ltd (OVL), the overseas arm of state-run Oil and Natural Gas Corporation (ONGC) that has interests in nine producing overseas assets, is looking to scale down financial dependence on the parent company. OVL, which has borrowings of over Rs 16,000 crore from ONGC, will now be looking for funds on its own.
OVL came into being in 1989, with rechristening of the erstwhile Hydrocarbons India Private Ltd, incorporated in 1965. Over a period of time, it has grown to become the second-largest Indian exploration and production company, both in terms of oil production and oil and gas reserve holdings.
OVL has another borrowing of Rs 3,000 crore from the markets that has gone into acquisition of overseas assets. Following a Cabinet decision, it opted for borrowing around Rs 4,000 crore to part-finance its roughly $2.12-billion Imperial deal in early 2009. It has repaid Rs 1,000 crore to institutions. Going forward, the company wants to raise funds on its own rather than depending entirely on ONGC.
“Instead of taking the entire money from ONGC, we can partly finance it through borrowings and partly from internal resources and ONGC,” said OVL Director (finance) S P Garg.
OVL will require an investment of around Rs 95,000 crore, or $22 billion, over the next five years. It is currently finalising its targets but is hoping to reach a production of 15-16 million tonne (mt) by the end of March 2017.
“It is a huge requirement. While discussions are going within the government for creating a sovereign wealth fund, in future the company will consider listing in some overseas market if needed,” he said.
OVL produced 9.448 million tonne of oil equivalent for the year 2010-11, while ONGC’s output excluding OVL was 52.58 million tonnes of oil equivalent. OVL is currently participating in 33 projects in 15 countries, of which nine are producing projects.
OVL’s company’s existing projects are generating cash flows of about $1billion every year which is adequate to take care of capital expenditure in existing fields. The company is sitting on cash reserves of around Rs 4,500 crore and is looking to acquire foreign producing fields with an investment of Rs 8,000-9,000 crore. “If we get a right deal, the budget will not be a constraint,” said the official.
With an all-time high output in 2010-11 and increasing profits, the company has managed to improve its debt-equity ratio. The ratio for the quarter ended June 30 was 1.23:1, compared to 1.41:1 in the corresponding quarter of the previous year.
For the first quarter, the company’s net profit has increased by 70 per cent to Rs 1,436 crore, while its revenues rose 43 per cent to Rs 6,342 crore. However, profits may not be similar in the remaining quarters since write-offs and dry well were not accounted in the first quarter and will have to be accounted in subsequent quarters. However, if crude oil remained at current levels, the profit would be better in subsequent quarters, the official said.