Oil & Natural Gas Corp (ONGC), India’s largest fuel explorer, plans to raise at least $500 million in a dollar bond sale as soon as next week to refinance part of its debt through cheaper funds, three people familiar with the matter said.
This is the state-owned company’s first sale of overseas bonds, although its subsidiary ONGC Videsh has raised dollar funds before.
ONGC launched a $2 billion medium-term note programme in August, which allows the company to tap the overseas bond market when needed, subject to market conditions. The bonds are likely to be listed on the Singapore Stock Exchange.
“This company has historically been cash-rich, but recent government-driven acquisitions of Hindustan Petroleum Corp and the Gujarat State Petroleum Corp’s stake in the KG Basin gas field has depleted the company’s resources and forced it to borrow from abroad,” one person said.
An ONGC spokesperson said the top management led by Chairman Shashi Shanker is holding road shows for the fundraising in Singapore and London but declined to divulge details.
“The amount that is raised would depend on the interest that we receive but there is no ceiling fixed. We will not be raising the entire amount in one go, we may raise around $500 million,” a company executive told ET on condition of anonymity.
If demand for the bond is strong, the company may choose to retain as much as $1billion, the people said. DBS Bank from Singapore, Mitsubishi UFJ Financial Group and Standard Chartered are some of the banks involved in the issue.
ONGC contributes about 75% of India’s domestic crude oil and natural gas production. It exhausted its cash and became a net debt company last year following the ₹36,915 crore acquisition of HPCL and the ₹7,738 crore purchase of GSPC’s stake in a KG basin field. Bankers said the bond is likely to be priced around a similar yield to the five-year paper by Exim Bank. In March, Exim Bank priced its five-year dollar bond at 140 bps above the five year US treasury, which currently trades at 1.58%. One basis point is 0.01 percentage point.
“Bankers and company officials will meet investors in Singapore on Thursday and also have calls with Hong Kong-based investors on Friday to gauge investor sentiment. There are also meetings planned in London. If all goes to plan, we may price the issue next week,” said another person.
Rating company Moody’s Investors Service has assigned a ‘Baa1’ rating to the issue, just a notch higher than the ‘Baa2’ sovereign rating, citing the company’s position as the largest integrated oil and gas company in India with significant reserves, production and crude distillation capacity, substantial operating cash flow and solid credit metrics.
“ONGC’s ratings may experience downward pressure if the sovereign rating is downgraded, ONGC increases its pace of acquisitions such that it results in higher business risk, and a deterioration in its credit metrics, or oil prices decline on a sustained basis, resulting in weak cash flow generation,” Moody’s said.
