Funds may be used for Azerbaijan acquisition
ONGC Videsh (OVL), the overseas arm of Oil and Natural Gas Corp (ONGC), will be raising at least $850 million by issuing 5-years and 10-years dollar-denominated bonds on Monday, according to investment bankers. The initial pricing for 5-years bonds issued are set at around 200 basis points (bps) over 5-years US treasuries, while the pricing for bonds maturing in 10-years are set at 230 basis points over 10-years US treasuries. The 10-years US Treasuries were at 1.6564% and 5 years were at 0.6743% on Monday.
According to investment bankers the pricing, which is benchmarked over US treasuries for such bonds, for 5-years? paper is expected to tighten to 175-180 bps on closing the book later in the day, while 10-years paper is expected to tighten to 200-210 bps. If the price for ONGC?s issues tightens as much as expected by investment bankers then it could be lowest priced 5-years and 10-years tenure papers issued this year. In January, Power Grid Corp, a public sector company, had raised $500 million by issuing 10-years dollar denominated bonds at 210 bps over US treasuries, the cheapest among all the 10-years paper issued this year. So far, among the 5-year bonds, HDFC Bank has raised $500 million at the lowest rate of 225 bps over US treasuries.
ONGC Videsh?s bond has a REG S status, which means the bond doesn?t need to be registered with the US Securities & Exchange Commission and can?t be sold to a US investor. The book is expected to close on Monday and the bonds will be listed in Singapore.
Standard & Poor?s (S&P) Ratings Services has assigned ?BBB-? rating to the proposed senior unsecured notes that have been guaranteed by the parent company. Deutsche Bank, Citi, and Royal Bank of Scotland are the bookrunners for the issue.
The funds raised from the US dollar-denominated issues by ONGC?s fully-owned subsidiary may be used for funding an acquisition in Azerbaijan. In September 2012, Hess Corp had said it agreed to sell 2.72% of its stake in the large Azeri, Chirag and Guneshli (ACG) group of oilfields in Azerbaijan as well as a 2.36% stake in an associated pipeline to ONGC for $1 billion. ONGC got the Cabinet approval for the deal in January 2013.
In the first four months of 2013, Indian companies have rushed to the overseas bond market to raise cheaper funds. Spreads for Indian dollar bonds have tightened by 125-175 basis points compared to last year, according to investment bankers. So far this year, 13 Indian companies have already mopped over $8 billion as excess liquidity in the global markets having boosted appetite for Indian paper.
Investment bankers expect Indian firms to raise about $17-20 billion via the overseas route. In 2012, India Inc had raised $9.8 billion.