The Hindu Business Line : $125-m termination fee looms over ONGC-Mittal's re-bid plan

WILL the high termination fee of $ 125 million come in the way of attempts by Oil and Natural Gas Corporation (ONGC) and L.N. Mittal Group combine to make a counter-offer for Canada-based PetroKazakhstan Inc?

A day after losing the bid for a stake in PetroKazakhstan to CNPC International Ltd, a wholly-owned subsidiary of China National Petroleum Corporation (CNPC), ONGC today said it was considering a counter-offer. For a counter-offer, the ONGC-Mittal combine would not only have to pay more than the CNPC offer of $ 4.18 billion, but also an additional $125 million for the termination of the award to the Chinese company.

The ONGC-Mittal combine's bid for PetroKazakhstan was $3.9 billion.

A senior ONGC official told Business Line that the ONGC-Mittal combine was evaluating a re-bid for 51 per cent stake in PetroKazakhstan, if given the opportunity.

The combine is expected to take a decision soon.

As per the agreement between PetroKazakhstan and CNPC International, the former is prohibited from soliciting any other acquisition proposal.

However, it allows the company board to accept and recommend a superior proposal to avoid breaching its fiduciary duties towards shareholders. This would force PetroKazakhstan to pay CNPC International a termination fee.

Further, the Chinese company has the right to make a superior offer when there is a counter-bid.

Aiyar for India-China joint bids: The ONGC-Mittal combine had made a higher bid at the closing of price bids on August 15, but still lost to CNPC, which was given another opportunity to revise its bid. Earlier, the Petroleum Minister, Mr Mani Shankar Aiyar, called for joint bidding by Indian and Chinese firms for scarce energy resources.

"It underlines the need for China and India to adopt a collaborative approach in bidding for oil and gas assets," he said.

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