ONGC to raise $4 bn overseas to fund Mozambique acquisitions

State-owned Oil and Natural Gas Corp (ONGC) is planning to raise $4 billion from the international market to fund its recent acquisitions in the giant Rovuma gas field in Mozambique.

In June, ONGC Videsh Ltd (OVL), the overseas arm of ONGC had teamed up with Oil India Limited (OIL) to acquire a 10-per cent stake in Rovuma Area 1 offshore block from Videocon for $2.48 billion.

The acquisition is going to be carried out via a newly incorporated entity in which OVL and OIL are expected to hold 60 per cent and 40 per cent respectively with OVL's share being $1.48 billion.

In August OVL acquired another 10-per cent stake in the same field from US oil and gas explorer Anadarko Petroleum for $2.64 billion.

"We plan to raise $4 billion in debt for the two acquisitions," Sudhir Vasudeva, chairman and managing director of ONGC had told reporters on the sidelines of a meeting of shareholders.

With the payment to Videocon due shortly, ONGC plans to raise $1.5 billion via a one-year bridge loan from the international market next week, which will be replaced in three to four months either through a US dollar bond issue or a bank loans.

S P Garg, finance director at OVL, told reporters that the company would invite bids from banks from Monday with the aim of raising the bridge loan by November.

With newly appointed Reserve Bank governor Raghuram Rajan raising the central bank's main lending rate by a quarter percentage point to 7.50 per cent, it has become cheaper for Indian companies to raise money overseas.

OVL plans to later raise a further $2.5 billion through bonds issue, long-term overseas loan or borrowing from ONGC to pay Anadarko, whose payment is due in February 2014.

Rovuma Area 1 covers approximately 2.6 million acres in the deep-water Rovuma Basin offshore Mozambique and represents the largest gas discovery in offshore East Africa with estimated recoverable reserves of 35 to 65 trillion cubic feet.

The other partners in Area 1 include Anadarko, operator of the project, ENH, Mitsui, BPCL and PTTEP.

Area 1 has the potential to become one of the world's largest LNG producing hubs with first LNG expected by 2018.

The adjacent Area 4 block is being operated by Italian oil and gas giant Eni SpA.

The two companies, along with their partners and the government of Mozambique plan to jointly develop a liquefied natural gas (LNG) park in the area and the first cargo shipment from there is expected in 2018.

Recently, the two operators agreed that they would conduct separate, yet coordinated, offshore development activities, while jointly planning and constructing common onshore liquefaction facilities in the form of LNG park in Cabo Delgado province of northern Mozambique.

The LNG plant will have an initial capacity of 20 million tonnes of LNG per year, which will be split evenly between Anadarko-led project and Eni's Area 4 project.

Recent natural gas discoveries in the prolific Rovuma field have boosted Mozambique's natural gas reserves to around 150 trillion cubic feet, as the country is strategically positioned to supply gas to India at competitive price.