OVL eyes $1.1 bn for Russian Vankor stake through $ bonds

ONGC Videsh Ltd (OVL) is looking to raise USD 500 million to USD 1.1 billion through a US dollar bonds issue to funds its acquisition of 15 per cent stake in Russia’s Vankor oilfield. Global rating agencies Moody’s and S&P have assigned long-term issue rating to the bond issuance. While Moody’s Investors Service assigned a Baa2 rating representing a relatively low-risk, S&P assigned ‘BBB-’ long-term investment grade rating reflecting opinion that issuer has the current capacity to meet its debt obligations.

Both ratings allow banks to invest in such rated bonds. An official claimed neither Moody’s nor S&P has given OVL’s bonds a ‘low investment grade rating’ as reported by some sections yesterday. He added there is no change in OVL’s issuer ratings and it is the same as previously assigned. 

According to Moody’s, it uses nine rating symbols -- Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C -- the first showing least credit risk and the last denoting greatest credit risk. Among these, the first four are classified as ‘investment grade’ and the last five as ‘speculative grade’ ratings by Moody’s.

In case of S&P, the investment grade ratings are BBB- or higher, while it is Baa3 or higher for ratings by Moody’s. In a statement, Moody’s had said yesterday it “has assigned a Baa2 rating to the proposed foreign currency senior unsecured bonds to be issued by ONGC Videsh Vankorneft Pte Ltd (OVVPL), a wholly owned subsidiary of Oil and Natural Gas Corporation (ONGC)”. S&P had said in a separate statement that the state-owned company will “unconditionally and irrevocably guarantee the notes…. We consider the proposed notes as ONGC’s debt obligation because the notes are issued by a 100 per cent-owned subsidiary set up to raise funds for ONGC,” it had added.

ONGC Videsh Ltd, the overseas arm of ONGC, expects to use the proceeds of the proposed notes to refinance existing bridge loans incurred to acquire a 15 per cent stake in CJSC Vankorneft for USD 1.26 billion.

“The ratings outlook is stable,” Moody’s said. “The proposed foreign currency bonds are rated at the same level as ONGC’s foreign currency issuer ratings because the bonds are unconditionally and irrevocably guaranteed by ONGC and the guarantee is pari passu to all senior unsecured obligations of ONGC.”

S&P said the rating on ONGC reflects the company’s strong competitive position as one of Asia’s largest oil exploration and production companies, with a long reserve life, stable production, and good profitability. “Even though the guaranteed amount has been restricted to 109 per cent of the principal amount of the bonds outstanding, we view it as sufficient to cover the amounts due to bond holders.

“The restriction of a guarantee to a finite amount is driven by regulations in India, which do not allow open-ended guarantees for obligations of offshore subsidiaries, rather than an actual intention on ONGC’s part to restrict its liability under the bonds,” said Vikas Halan, a Moody’s Vice President and Senior Credit Officer.

Moody’s noted that ONGC’s liquidity position is strong, with cash and cash equivalents of Rs 25,800 crore against debt of Rs 9600 crore maturing over the next 12 months. In addition, the company has access to other sources of liquidity on its balance sheet.