The Hindu Business Line : ONGC in loan talks for Sudan refinery deal

ONGC Ltd is negotiating a 12-year loan to raise $600 million for financing a Sudan refinery expansion project for its subsidiary OVL Ltd, with close to 10 Indian and foreign banks.

The banks are expected to form a consortium for raising the funds and are looking at a likely interest rate of three per cent above the London Inter Bank Offer Rate (LIBOR), a senior official with a leading public sector bank said. One year LIBOR is at 3.19 per cent.

The Oil and Natural Gas Corporation had last month asked banks to help raise a "non-recourse" debt for its subsidiary ONGC Videsh Ltd, to help finance the revamp and expansion of a three million-tonne refinery in Sudan and laying a 740-km pipeline. A non-recourse debt would mean that in case of default, lenders would have to recover money from the asset itself and OVL would not be directly responsible.

Most of the banks that have approached OVL are, however, uncomfortable with the idea of "non-recourse" financing, as Sudan is a politically unstable country where more than 10,000 people have been killed and one million rendered homeless in an ongoing civil war.

Although lenders will look at ways to cut risks through insurance, they will try to negotiate for recourse to ONGC's balance sheet in case the project ran into trouble, said a senior official with a leading public sector bank. ONGC's net turnover last year was Rs 32,180 crore.

Indian lenders including State Bank of India, State Bank of Patiala, State Bank of Travancore, Canara Bank, Bank of Maharashtra, etc and foreign banks - especially French lenders such as BNP Paribas — have made offers, a senior ONGC official said.

This is one of the first major borrowings for ONGC Ltd, which had become a debt-free company since 2002-03.

Total value of the expansion and pipeline project is $1.2 billion. Of this, OVL will bring in $600 million while a consortium of lenders will bring in the other half.

The Cabinet had approved a budget of $1 billion for ONGC investments in Sudan. Since ONGC has already invested roughly half that sum in the Greater Nile project — its first project in Sudan that has reserves of more than a billion barrels of oil — it cannot bring in the entire money needed for the Port Sudan project.

The Port Sudan refinery expansion and pipeline project is the second project that OVL won late last year. The 740-km product pipeline, from Khartoum refinery to the Port of Sudan, was estimated to cost $200-300 million. The refinery revamp and expansion from 34,000 barrel a day to 71,000 barrels a day was valued at $400-500 million.

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