OVL eyes up to $1.1 bn through dollar bonds for Vankor deal

ONGC Videsh Ltd is looking to raise USD 500 million to USD 1.1 billion through a US dollar bonds

issue to funds its acquisition of 15 per cent stake in Russia's Vankor oilfield.

Global rating agencies Moody's and S&P have assigned long-term issue rating to the bond issuance.

While Moody's Investors Service assigned a Baa2 rating representing a relatively low-risk, S&P

assigned 'BBB-' long-term investment grade rating reflecting opinion that issuer has the current

capacity to meet its debt obligations.

Both ratings allow banks to invest in such rated bonds.

An official claimed neither Moody's nor S&P has given OVL's bonds a 'low investment grade rating'

as reported by some sections yesterday. He added there is no change in OVL's issuer ratings and it is

the same as previously assigned.

According to Moody's, it uses nine rating symbols — Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C — the first

showing least credit risk and the last denoting greatest credit risk. Among these, the first four are

classified as 'investment grade' and the last five as 'speculative grade' ratings by Moody's.

In case of S&P, the investment grade ratings are BBB- or higher, while it is Baa3 or higher for ratings

by Moody's.

In a statement, Moody's had said yesterday it "has assigned a Baa2 rating to the proposed foreign

currency senior unsecured bonds to be issued by ONGC Videsh Vankorneft Pte Ltd (OVVPL), a wholly

owned subsidiary of Oil and Natural Gas Corporation (ONGC)".

S&P had said in a separate statement that the state-owned company will "unconditionally and

irrevocably guarantee the notes".

"We consider the proposed notes as ONGC's debt obligation because the notes are issued by a 100

per cent-owned subsidiary set up to raise funds for ONGC," it had added.

ONGC Videsh, the overseas arm of ONGC, expects to use the proceeds of the proposed notes to

refinance existing bridge loans incurred to acquire a 15 per cent stake in CJSC Vankorneft for USD

1.26 billion.

"The ratings outlook is stable," Moody's said. "The proposed foreign currency bonds are rated at the

same level as ONGC's foreign currency issuer ratings because the bonds are unconditionally and

irrevocably guaranteed by ONGC and the guarantee is pari passu to all senior unsecured obligations

of ONGC."

S&P said the rating on ONGC reflects the company's strong competitive position as one of Asia's

largest oil exploration and production companies, with a long reserve life, stable production, and

good profitability.

"Even though the guaranteed amount has been restricted to 109 per cent of the principal amount of

the bonds outstanding, we view it as sufficient to cover the amounts due to bond holders.

"The restriction of a guarantee to a finite amount is driven by regulations in India, which do not

allow open-ended guarantees for obligations of offshore subsidiaries, rather than an actual intention

on ONGC's part to restrict its liability under the bonds," said Vikas Halan, a Moody's Vice President

and Senior Credit Officer.

Moody's noted that ONGC's liquidity position is strong, with cash and cash equivalents of Rs 25,800

crore against debt of Rs 9600 crore maturing over the next 12 months.

In addition, the company has access to other sources of liquidity on its balance sheet.

NGS INDIA