Will OVL get more financial clout to pump in $1 bn abroad?

THE overseas arm of Maharatna PSU ONGC is looking for greater financial autonomy to take a call on investments to the tune of $1 billion (about Rs 6,400 crore) without government approval. The move aims at expediting acquisition of overseas oil and gas fields, say media reports.

The board of OVL, the overseas arm of state explorer Oil and Natural Gas Corp, currently has powers to...

decide on investment of up to Rs 300 crore. An amount higher than that has to first go to an Empowered Committee of Secretaries (ECS) and then to the Cabinet Committee on Economic Affairs (CCEA).

"We are seeking at least Navratna PSU status for OVL... $1 billion investment powers should be granted to us," the company's managing director Narendra K Verma told reporters.

OVL is a Navratna PSU and the status allows boards of PSU financial powers to decide on investment projects of up to Rs 3,000 crore.

"We are are seeking more than Navranta powers," he said. "We are seeking powers to decide on investments of up to USD 1 billion," Verma added.

More financial powers will help the company make quicker decisions on acquiring oil and gas assets abroad.

The Rs 300 crore financial power for OVL was set in 2000 when the rupee-US dollar exchange rate was completely different. "Right now Rs 300 crore is nothing," he said.

OVL has 35 projects in 16 countries from Brazil to New Zealand and is looking at certain acquisitions in oil and gas rich regions.

Navranta PSU status is granted to a state firm if it has made consistent profits above a certain level. One of the conditions for grant of Navranta status is that the company should be listed on stock exchanges.

"Listing is a requirement but there exemptions can also be granted," he said.

OVL is currently 100 per cent owned by the ONGC.

Recently, ONGC rejected a request from the Department of Disinvestment (DoD) to get the company listed saying low oil prices do not offer favourable valuations.

"I don't think this is the ideal time to list an oil exploration company. Low oil prices are not ideal time for listing," Verma said.

"Our portfolio predominately consists of exploration assets and a few producing properties. Markets typically do not fully value exploration assets and all our exploration assets will not get true valuations," Verma noted.

He said the company does not need funds and has been raising loans from parent ONGC as well as the market to meet cost of acquisitions and development of assets.

The company has Rs 6,614 crore loan from ONGC and another Rs 29,000 crore from the market. The Rs 5,000 crore ONGC loan is being converted into equity, he said.

Listing will lead to certain other stipulations including change of ownership. "Currently we are seamlessly integrated with ONGC and all our requirements of funds, technology and manpower are fully met from ONGC. Listing will change that," he said.

"I do not want to comment on the issue (of government seeking listing of OVL) but I can explain to you the rationale for a listing. A company is listed to leverage additional financial resources. We are leveraging debt financing," he said.

Converting Rs 5,000 crore ONGC loan into equity will raise the equity capital of OVL to Rs 15,000 crore, Verma said. This will improve its debt-to-equity ratio and help it independently raise funds on the strength of its own balance sheet instead of relying on ONGC's financial status.