Oil India to raise $900 mn debt for Mozambique field stake buy

The stake will be split 60:40 between OVL, the overseas arm of ONGC, and OIL.

Updated: Jun 26, 2013, 21:11 PM IST

New Delhi: State-owned Oil India Ltd (OIL) on Wednesday said it will raise USD 800-900 million in foreign debt to finance its share in the USD 2.5 billion acquisition of a stake in super-giant Mozambique gas field it is making with ONGC.

Oil and Natural Gas Corp (ONGC) and OIL, the nation's biggest state-run explorer, yesterday announced that they will buy Videocon Industries' 10 percent stake in a supergiant Mozambique gas field for USD 2.5 billion.

The stake will be split 60:40 between OVL, the overseas arm of ONGC, and OIL.

"We plan to go to overseas market to raise 80 to 90 percent of our share of USD 1 billion (in the acquisition)," OIL Director (Finance) T K Ananth Kumar told reporters here.

The borrowing, which will insulate the company from the volatility in the rupee-dollar exchange rate, will be a combination of external commercial borrowing and US dollar bond issue.

With rupee plummeting to a record low of 60.76 to a US dollar, outward remittance will cost more for companies. Raising debt overseas and paying for the acquisition in offshore accounts of the seller would insulate the deal from the currency fluctuations.

"The currency variation will only have a marginal impact... To the extent of 10 percent of the deal size that we have to pay from our reserves," he said.

OIL Director (Business Development) N K Bharali said the Rovuma-1 field in the waters off the African nation, holds 35 to 65 Trillion cubic feet of gs reserves which are planned to be converted into liquid gas (LNG) for exports to nation's like India.

"First gas is planned for 2018," he said, adding that the acquisition of 10 percent interest of Videocon is targeted to close by September 30, 2013.

The deal is subject to approval of the Mozambique and Indian government, regulatory permissions and existing partners in Rovuma-1 area waiving off their pre-emption rights, he said adding that the partners in the block have one month time to decide.

Bharali said besides the acquisition price, OVL-OIL will have to also pay their share of field development cost and the capital expenditure required for building plants that will turn gas into liquefied natural gas (LNG).

The total capital and operating expenditure if two trains or units of LNG plants are built, would be USD 31.25 billion and USD 86 billion if six trains are built. "Of this, OIL's share would be 4 percent," he said.

The Rovuma field may hold as much as 65 Trillion cubic feet (Tcf) of inplace gas reserves, more than 10 times the reserves in Reliance Industries' eastern offshore KG-D6 fields, and has the potential to become one of the world's largest liquefied natural gas (LNG) producing hubs by 2018.

US energy firm Anadarko Petroleum is the operator of Area-1 with 36.5 percent while Videocon and a unit of Bharat Petroleum Corp Ltd (BPCL) hold 10 percent stake each. Japan's Mitsui & Co Ltd is the second-biggest stakeholder with a 20 percent interest.

Thai state oil company PTT Exploration and Production PCL has 8.5 percent interest and Mozambique's state-owned ENH 15 percent.