State-owned Oil and Natural Gas Corp. Ltd (ONGC) Wednesday said the government has not yet asked it to reconsider listing its overseas arm ONGC Videsh Ltd on bourses. The board of ONGC had on 21 December considered a government demand to list its profitable overseas investment arm but opined that it was not the right to go for an initial public offering (IPO).
ONGC chairman and managing director Shashi Shanker said the company has communicated its views on ONGC Videsh’s listing to the government. After that “we have not received any request to reconsider (listing of )”, he told reporters here.
The company will reconsider it if and when such a request is made, he said.
According to people familiar with developments, the ONGC board had on 21 December deliberated on the demand from the Department of Investment and Public Asset Management (DIPAM) for the listing of ONGC Videsh but felt that the market conditions are not right for an oil and gas exploration and production company to list. Also, there were several complexities involved in getting the firm listed.
ONGC Videsh, they said, has assets in countries like Venezuela, Iran, and Sudan, which are exposed to some or other Western sanctions.
These assets will have to be first separated from the company. While this may not be a difficult task, it would involve issues of capital gains and tax thereon, they said.
Also, ONGC Videsh is heavily under debt and such a move would require taking approval of all the lenders—yet another tedious job.
A third of its $28.45 billion (₹1.51 trillion) investment in 41 projects in 20 countries has been financed by loans.
More importantly, ONGC Videsh has been only in acquisition mode till now and has not yet reached an economic model where it can stand on its own feet. The company is dependent on its parent for even guarantees for taking loans.
ONGC Videsh has great assets and it would reach that economic model once couple of its assets like the giant gas field in Mozambique starts production, the people said. ONGC Videsh projects are in the development stage and an IPO will get the best value when these projects are monetised, they said.
ONGC Videsh’s giant gas field in Mozambique will start production sometime in 2022 when two LNG trains of 12 million tonnes per annum capacity are set up and gas exported in cryogenic ships.
Its Farzad-B gas field in Iran is on hold in view of US sanctions on the Persian Gulf nation. Also, its Venezuelan oilfields are producing much less than their potential.
According to a letter DIPAM wrote to ONGC management in August, ONGC Videsh IPO would help unlock value by improving its corporate governance and efficiency.
ONGC had helped the government meet its disinvestment target last fiscal when it bought a 51.11% stake in state-owned Hindustan Petroleum Corp Ltd (HPCL) for ₹36,915 crore.
After failing to find a buyer for Air India, DIPAM is again looking at ONGC to meet the ₹80,000 crore government disinvestment target set in the budget for 2018-19 from PSU stake sales. In the letter, DIPAM said PSUs with a positive net worth and no accumulated losses should be listed to unlock value. It, however, did not state how much stake in ONGC Videsh should be sold for its listing.
Market regulator Securities and Exchange Board of India (Sebi) calls for a minimum 25% public float for a listed company.
The people quoted above said proceeds of from a potential ONGC Videsh IPO would accrue to its parent ONGC but the government would seek a special dividend to reap that.
The government owns 67.45% stake in ONGC. If ONGC were to declare entire proceeds of ONGC Videsh listing as a special dividend, the government would get 67.45% of the amount.
The government had in 2015 as well asked ONGC to list ONGC Videsh. But the state-owned firm had at that time told the government that it was not the right time to list as oil prices were subdued and the company would not get the right value.
Oil prices have since rebounded and the government is looking to cash in on that.
Under its portfolio, ONGC Videsh has reserves of 711 million tonnes of oil and oil equivalent natural gas.
In 2017-18, it produced 9.35 million tonnes of crude oil, up from 8.43 million tonnes in the previous year. Together with natural gas, the output was 14.16 million tonnes of oil equivalent, up from 12.80 million tonnes in the previous year.
It reported a net profit of ₹981 crore on a turnover of ₹10,418 crore in 2017-18 fiscal. This compared with a net profit of ₹701 crore on a turnover of ₹10,080 crore in the previous fiscal. It had reported a net loss of ₹3,633 crore in 2015-16 due to a sharp drop in oil prices.
Source: Mint