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OVL raises $1.5 Billion to fund acquisition deal
By siliconindia
New Delhi: To partly finance its $2.1 billion acquisition deal with UK based oil exploration and production firm Imperial Energy, ONGC Videsh (OVL), the investment arm of oil explorer ONGC raises $1.5 billion (
5,250 crore) from Citibank. The R S Sharma headed oil firm will raise the funds by issuing one-year commercial paper, which will be subscribed to by Citibank and carry an interest rate of 8.15 percent.
While the Citibank financing will account for around $1 billion of the $2.1 billion acquisition bill, the balance funding will be provided by ONGC to OVL as debt. "This could be one of the largest commercial paper deals in the Indian corporate debt market. It shows the comfort of the lender as these (CPs) are easily marketable," said Sanjay Hegde, Executive Director, PricewaterhouseCoopers.
Through its entrance into the debt market, the Delhi-based overseas investment arm will have a 335 basis points premium to the corresponding treasury bill rate of 4.75 percent, as reported by Economic Times. However, the interest rate lower than what OVL would have had to pay, if it had raised the money overseas. "The deal will be closed within a week. This is a landmark transaction in many ways. The rate could not have been better," said ONGC's Finance Director, DK Sarraf. The Reserve Bank of India (RBI) have cut banks' cash reserve ratio and other key interest rates as part of efforts to support growth amid a deepening economic slowdown.
OVL, which has over the years acquired oil assets in countries such as Sudan, Russia, Nigeria and Vietnam, has managed to bring down its debt burden to around 10,000 crore from nearly 25,000 crore in 2003, after its overseas facilities started generating revenues. It had also explored financing options with several banks and financial institutions, including raising money overseas.
5,250 crore) from Citibank. The R S Sharma headed oil firm will raise the funds by issuing one-year commercial paper, which will be subscribed to by Citibank and carry an interest rate of 8.15 percent.
While the Citibank financing will account for around $1 billion of the $2.1 billion acquisition bill, the balance funding will be provided by ONGC to OVL as debt. "This could be one of the largest commercial paper deals in the Indian corporate debt market. It shows the comfort of the lender as these (CPs) are easily marketable," said Sanjay Hegde, Executive Director, PricewaterhouseCoopers.
Through its entrance into the debt market, the Delhi-based overseas investment arm will have a 335 basis points premium to the corresponding treasury bill rate of 4.75 percent, as reported by Economic Times. However, the interest rate lower than what OVL would have had to pay, if it had raised the money overseas. "The deal will be closed within a week. This is a landmark transaction in many ways. The rate could not have been better," said ONGC's Finance Director, DK Sarraf. The Reserve Bank of India (RBI) have cut banks' cash reserve ratio and other key interest rates as part of efforts to support growth amid a deepening economic slowdown.
OVL, which has over the years acquired oil assets in countries such as Sudan, Russia, Nigeria and Vietnam, has managed to bring down its debt burden to around 10,000 crore from nearly 25,000 crore in 2003, after its overseas facilities started generating revenues. It had also explored financing options with several banks and financial institutions, including raising money overseas.