OVL gains `700 crore on euro bonds for Mozambique buy

ONGC Videsh Ltd (OVL), the overseas arm of state explorer Oil and Natural Gas Corporation (ONGC), has made a gain of about Rs 700 crore on a Euro loan it had raised to finance its Mozambique acquisition. ONGC Videsh Ltd had raised Euro 525 million (about $712 million) through a 7-year bond issue in July last year to part finance its $4.125 billion purchase of a 16 per cent stake in Mozambique’s offshore Rovuma Area 1, which holds as much as 75 Trillion cubic feet of gas reserves.

“The decision to go for a Euro bond issue has paid dividends. We have made a gain of about Rs 700 crore on account of foreign exchange changes. When we raised the loan, one Euro was equivalent to $1.36. Today the ratio is 1.12:1,” ONGC Videsh Ltd Director (Finance) S P Garg said here. The exchange rate change means ONGC Videsh Ltd will have to repay Rs 700 crore less as its revenues are mostly dollarised.

The loan was raised at a highly competitive interest rate of 2.75 per cent per annum and the exchange rate changes have meant that ONGC Videsh Ltd is saving Rs 50 crore in interest outgo per annum, he said. Alongside the Euro 525 million raised through a 7-year bonds issue, OVL had also raised $750 million by selling dollar denominated bonds of 5-year tenure and another $750 million selling 10-year bonds.

Garg said the bond sale was the biggest ever from Asia. Also, it was the first euro issue for a government-owned corporate. The five-year and 10-year dollar bonds were priced at 160 basis points and 207 basis points above the 5-year and 10-year US treasury yields. A basis point is 0.01 per cent.

Garg said OVL decided to fund the Mozambique acquisition through cheapest available loan. The effective rate of interest was 3.25 per cent for the 5-year dollar bond and 4.622 per cent for the 10-year dollar bond.

He said the bond proceeds were used to refinance ONGC Videsh Ltd’s bridge loans availed to immediately pay for the Mozambique acquisition. In June 2013, ONGC Videsh Ltd teamed up with Oil India Ltd to buy Videocon Industries’ 10 per cent stake in deep water gas field in Mozambique’s Rovuma basin for $2.48 billion.

ONGC Videsh Ltd followed it up by acquiring another 10 per cent stake from Anadarko Petroleum Corp of the US for $2.64 billion in August 2013. The Videocon stake was split between ONGC Videsh Ltd and Oil India Ltd (OIL) in a 60:40 ratio. 

To finance its 6 per cent buy, ONGC Videsh Ltd in January 2014 raised $1.5 billion one-year bridge loan facility from a consortium of 9 banks. To pay for the Anadarko stake acquisition, it had in February 2014 raised $2.5 billion in foreign loans.

The Rovuma Area 1 is estimated to hold recoverable natural gas resources of upto 75 Tcf, which are to be converted into liquid gas (liquefied natural gas or LNG) for shipping to consumers like India.