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Foreign Loans For ONGC Videsh
15 April, 2004

Oil and Natural Gas Corporation (ONGC) plans to tap the external commercial borrowing (ECB) route to raise funds to acquire oil equity abroad through its subsidiary ONGC Videsh (OVL).

Sources said ONGC has an investment commitment of around Rs 20,000 crore in overseas projects through OVL.

The largest profit-making oil production major is currently working on various possibilities, including ECB, to meet its future investment needs.

“Although it is at a premature level, one can expect that about 50 per cent of the total investment needs will be generated from the ECB route. Given the oil major’s international reputation, it will not be a problem to fulfil its needs,” a senior ONGC official said.

ONGC is also working on a capital restructuring plan for OVL to make the subsidiary self-reliant on fund mobilisation.

“Till now, the fund needed by OVL for investment in overseas projects has been mobilised quite easily on ONGC’s books. But the OVL balance-sheet needs to be corrected so that it can work as a standalone company,” he said.

According to the proposal, the authorised capital of OVL will be raised to Rs 5,000 crore from the existing Rs 1,000 crore. The paid-up capital will be jacked up from Rs 300 crore to Rs 500 crore.

OVL’s balance-sheet shows a Rs 12,000-crore debt on equity of Rs 300 crore. This adverse debt-equity ratio raises questions when OVL goes for acquisitions abroad. However, it could not be ascertained whether the capital restructuring will come from fresh mop-up or interest-free loans from ONGC that will be converted into equity.

Currently, OVL is one of the most aggressive players in the world. So far, it has invested a huge amount of money through interest-free loans from its parent.

While ONGC will continue to provide support from its coffers, the company wants its subsidiary to emerge as a full-fledged exploration and production company, unlike its present status as an investment vehicle. Recently, OVL made heavy investments in Sudan and acquired Shell’s 50 per cent stake in block 18 in Angola for $638 million.

Sources said ONGC has long-term plan for Africa where it has plans to make an investment of around Rs 1,000 crore.

OVL has stakes in giant Sakhalain project in Russia, Iran, Syria, Libya, Iraq, Sudan, Angola, Vietnam and Myanmar


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