OVL refinances $1.78 bn loan at lower coupon rates

In a first by a public sector firm, ONGC Videsh Ltd has refinanced a $1.775 billion loan at lower rates to save nearly $37 million in interest payout, besides extending the repayment tenure.

OVL, the overseas arm of state-owned Oil and Natural Gas Corp (ONGC), had in July 2014 financed its $4.125 billion purchase of a 16 per cent stake in Mozambique’s giant Rovama Area-1 gas block through a combination of dollar and Euro bonds and bank loans.

The company had then raised $1.775 billion through a five-year loan from a consortium of banks. “We have refinanced this loan at lower coupon rate,” OVL Managing Director and Chief Executive Narendra K Verma said.

While originally the $1.775 billion loan was taken at a coupon rate of LIBOR plus 165 basis points, the refinancing has been done at an interest rate of LIBOR plus 95 basis points.

The London Interbank Offered Rate (LIBOR) is a global benchmark for the cost of borrowing.

“The effective rate of interest in the 2014 loan was 1.95 per cent which we have now brought down to 1.5 per cent, helping save $36.7 million in interest payment over five years,” he said. “Also, the repayment has been reset to 2021 instead of 2019 previously.” The repayment will coincide with repayment of Euro loan taken.

OVL had raised Euro 525 million through a 7-year bond issue in July 2014. Alongside, it also raised $750 million by selling dollar denominated bonds of 5-year tenure and another $750 million selling 10-year bonds.

“The refinancing is reflective of Indian economy’s standing globally,” Verma said. “It is a statement of India’s strength and OVL’s capabilities.” 

OVL’s decision to go for a Euro bond issue had earlier paid dividends as it gained about Rs 700 crore on account of foreign exchange changes. The company had raised the loan when one Euro was equivalent to 1.36 US dollars. Today the ratio is 1:1.09. The exchange rate change means OVL will have to repay Rs 700 crore less as its revenues are mostly dollarised.