The tight liquidity condition coupled with a fall in international crude oil prices has made ONGC Videsh (OVL) seek another government approval for its biggest recent acquisition Imperial Energy. OVL, the overseas arm of Oil and Natural Gas Corporation (ONGC), has sought government permission to use about Rs 23,000-crore ONGC cash surplus for the $2.6 billion deal instead of resorting to debt.
A senior company executive told Financial Chronicle, “While granting permission for the acquisition, the government had asked OVL to finance the deal up to $1 billion through debt. It was for the first time that such a directive was given.” OVL has financed so far all its acquisitions on the strength of ONGC’s balancesheet. The new request is being made because the company feels interest rates are too high. Government-owned banks are charging their best customers about 13 per cent interest on lending.
A government official added that the OVL move could have also been prompted by the recent slide in international crude oil prices. “Financiers may doubt the viability of valuation on the ground that when OVL bagged the asset in August, oil prices were in $90-96 a barrel range and are now hovering in $50-55 a barrel range,” said the official.
The purchase was at a premium of 62 per cent over the scrip price, prevailing a day before Imperial Energy first announced it had received an offer, the company had said then. The shareholders were entitled to receive 1250 pence a share but the scrip was now trading at 880-885 range on the London Stock Exchange.
Officials said it was not very clear whether the fresh approval would need to go to the Cabinet or it could come from the ministry of petroleum and natural gas.
Imperial scrip has been showing voltalitiy on market rumours that OVL may scale down the bid price but company executives said it did not make sense since the new deal would need to be accepted by Imperial.
OVL had beaten China’s Sinopec in the takeover of Imperial Energy. It was OVL’s biggest oversees acquisition and the second investment in Russia. The company in 2001 had won a 20-per cent stake in the Sakhalin-1 oil and gas consortium headed by US major Exxon.
Imperial Energy has licenses to drill in the West Siberian region of Tomsk, the Kamchatka Peninsular and in Kastanai in North-Central Kazakhstan. It produced 10,000 barrels a day in December 2007, and plans to produce 35,000 barrels a day by the end of 2009 and 80,000 barrels a day by 2011.

Imperial Energy/LSE £1,065