The Hindu Business Line : Oil India, IOC plan entity for overseas buys

Foreign plans
The move will allow both companies to approach prospective buyers as a single entity instead of a consortium.
Both companies are likely to 50:50 partners in the new entity.

New Delhi April 1 Oil India Ltd (OIL) and Indian Oil Corporation Ltd (IOC) are set to float a separate entity for acquiring oil and gas assets abroad.

The board of OIL has in-principle agreed to set up a special purpose vehicle (SPV) with IOC for overseas assets bidding.

In other words, the two companies need not approach any prospective seller as consortium partners but would go as a single entity.

This move is expected to expedite the acquisition of oil and gas assets abroad. Sources told Business Line, the OIL board, which met on Friday, has given its nod for the proposal and the IOC board is expected to take up the matter soon.

The two companies would then work out other details such as where the company would be registered, name, and the capital base of the company.

However, one thing is clear that both OIL and IOC would be equal partners (50:50) in the entity, he said.

Project-specific SPV

Elaborating on the decision, a Petroleum Ministry official said, currently the OIL-IOC consortium has to set up a project-specific SPV before acquiring an asset.

In fact, the board's approval was in sync with the Petroleum Ministry's thinking to allow both companies to form SPV to undertake overseas projects, including acquisition and exploration.

Under the present dispensation, the OIL-IOC combine as a consortium is allowed to invest up to Rs 300 crore after seeking approvals of the competent authorities — board approvals and Governmental nod — for acquiring assets. Mr Ajay Arora, Partner - Oil & Gas Practice, Ernst & Young India, said: "This move would help the OIL-IOC combine to put in place a dedicated team required to focus on acquiring assets and competing in the global market.

"Also, when compared to consortium approach, the ability to be considered as a preferred buyer is higher if one pitches as single entity."

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