Oil India, OVL to pay $2.5 b for 10% stake in Mozambique asset

Our Bureau New Delhi | Updated on March 12, 2018 Published on June 25, 2013

Videocon Industries to use sale proceeds to settle a part of debt

Oil India Ltd (OIL) and ONGC Videsh Ltd (OVL) will pay $2.47 billion to acquire a 10 per cent stake in the Rovuma 1 gas field in Mozambique. The stake is currently held by the Venugopal N. Dhoot-promoted Videocon Industries.

In statements issued on Tuesday, the two companies announced that they have signed a definitive agreement in Singapore with Videocon Mauritius Energy Ltd to acquire 100 per cent of its arm Videocon Mozambique Rovuma 1 Ltd, which has the stake in the gas project.

Debt burden

Industry observers say Videocon will use the proceeds of the stake sale to settle a part of its huge debt burden.

“The acquisition is subject to approvals from the Governments of Mozambique and India, relevant regulatory approvals, pre-emption rights and other customary conditions,” OIL said in a statement.

ONGC Videsh had announced the same deal on June 10, though it withdrew its statement after a few hours, without citing any reason. Insiders say the company had jumped the gun as negotiations were still under way.

The transaction is expected to be closed in the fourth quarter of 2013, through an escrow account. This means the buyers will first put funds into the account. As and when clearances are granted, the funds will be released to Videocon. However, nearly 7.5 per cent of the amount will be kept aside over the next 24 months to take care of any eventualities.

Asked if the public sector entities have struck the deal at a premium, a banker associated with the deal said “it is not a correct assessment. The project has the potential to become the biggest gas hub of the world.”

The Rovuma project has estimated recoverable resources of 35-65 trillion cubic feet (tcf) of gas. It has the potential to become one of the world’s largest liquefied natural gas producing hubs with first output expected in 2018.

Asked why Videocon is exiting if the asset is so attractive, a source said: “there are players who make initial investments, explore the asset and, once there is a find, exit.” The public sector companies will form a special purpose vehicle, in which OVL will take 60 per cent stake and OIL 40 per cent.

T.K. Ananth Kumar, Director (Finance) at OIL, told Business Line that the company would look to raise debt to fund the acquisition.

Kuldeep Drabu, Director Videocon, in a statement to stock exchanges, said: “Videocon will remain interested in Mozambique....Videocon shall also continue to explore more opportunities in the energy sector pursuant to its corporate objectives and strategy to remain actively invested in E&P activities worldwide.”

Bank of America Merrill Lynch acted as financial adviser to OVL, while Morgan Stanley is advising OIL. Ernst & Young is the tax and accounting adviser, while Simmons & Simmons acted as legal adviser to both companies. OIL also engaged Halliburton as technical consultants.

Other acquisitions

Others partners in the project include US-based Anadarko Petroleum Corporation, Mozambique’s ENH, Japan’s Mitsui, India’s Bharat PetroResources and Thailand’s PTTEP. After the deal, Indian companies will have a total 20 per cent stake in the gas project.

Since September 2012, OVL has made nearly $8.5 billion worth of acquisitions of overseas assets. In October 2012, OIL and Indian Oil Corporation acquired 30 per cent stake in Houston-based Carrizo Oil & Gas’ Niobrara shale gas asset in Colorado for $85.2 million.


Published on June 25, 2013
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