Exploration firm fears its wholly owned arm outgrowing it; keen on foraying directly into overseas acquisitions
Will ONGC Videsh (OVL), the overseas ventures arm of India’s largest exploration firm ONGC, be merged back into an insecure parent? ONGC’s senior management is considering such an option and turning OVL into a just a division of the parent firm, for fear of losing the high-value subsidiary.
OVL, set up in 1989 with the specific purpose of acquiring hydrocarbon assets abroad and bolster the country’s energy security, has since acquired substantial assets in central Asia, Africa and Latin America and is now planning to list on overseas bourses.
ONGC, on the other hand, has seen tardy progress over the past few years in its exploration efforts and, recently, the Comptroller and Auditor General (CAG) indicted the company for various lapses, including tardy pace in monetising discoveries, inefficiency in exploration efforts and inflated reporting of reserve accretion. Sources in the know said ONGC is keen on foraying directly into overseas acquisitions to boost its asset base.
When contacted DK Sarraf, managing director, OVL, however, said, ?There is no thought of merging OVL with ONGC.?
ONGC’s fear also stems from the fact that OVL, in the long run, might be made a completely separate and independent company by the government, as its valuation is slated to increase in the years to come. According to highly placed sources at ONGC who don’t want to be quoted, the company is thinking on the lines of merging OVL with ONGC so that the combined entity could look at global reach.
RS Sharma, former ONGC chairman, said, ?There is no competition among the two entities as of now. It is unlikely that the merger will take place, but there is a risk of losing the entity if it gets listed and outgrows in future.?
Independent analysts also say that any move to separate OVL from ONGC will have adverse impact on relationship between the two and work as there will be reverse synergies. Once it gets listed, OVL may not enjoy a 0% interest on loan from ONGC, they pointed out..
OVL has presence in 15 countries and operating 30 exploration and production projects worth $12 billion.
?The government recently upgraded OVL scheduled status to ‘A’ grade. It may also allow to go for listing. This could be the logical precursor to OVL being granted a Navaratna status,? the source added.
Earlier, there were plans to list OVL to raise funds and acquire overseas assets, which would dilute ONGC stake. The board of directors of ONGC debated plans to list its overseas arm and decided to evaluate several options before taking a decision on the proposed listing. The plan has been put on hold as of now, citing depressed market conditions.
The total oil and gas production of OVL is nine million tonne and its current revenues are of R22,000 crore. On the other hand, ONGC production level are five holds higher at 60 million tonne with revenues of R77,000 crore.
SC Tripathi, former oil secretary, said: ?Once OVL gets listed, its valuation may become higher. There could be a possibility of becoming a separate entity.?