B&E: ONGC has undertaken various ventures and unveiled a huge investment plans for the same. Please highlight the source of funds and the plans there of?
RS: ONGC per se on a standalone basis is a zero debt company. We have enough liquidity to take care of our investments for the next 3-4 years. But to integrate the growth plan of the group we have started initiatives like the petrochemicals at Bhopal with Rs.150 billion investments. It is a SPV where ONGC has 26% equity and the debt-equity ratio is 2:1. Thus there is a large amount of debt involved. So we have tied up with a consortium of around 20 banks to support the almost Rs.80 billion debt. For MRPL expansion, here too, we have enough financial comforts by various banks. We are looking to make an investment in aromatics in Mangalore. OVL too has borrowing of about Rs.50 billion, thus the total borrowing adds up to around Rs.250 billion.
B&E: Please throw some light on your various overseas acquisitions specifically Imperial and the related criticism?
RS: We are already operating in 17 countries and our focus has been the African continent, Latin American countries, Middle East are our pre-dominant areas of operation. The Imperial acquisition has been a very good purchase from the strategic point of view. The acquisition came under a lot of criticism at the time of crude prices crash because in the case of OVL entities there is no system of subsidy sharing so the natural hedge is not available. So there was huge criticism that this transaction would result in heavy losses but we have been maintaining strong fundamentals which is likely to shield us against the price crash. The volatility in the prices was not based on fundamentals as there were no reasons for prices to sky-rocket to $147 per barrel but again there was no reason for them to crash either.
B&E: ONGC has adopted inorganic activities as a major way to grow and expand, is it a growth or survival strategy and why?
RS: M&A is both a growth and survival strategy for ONGC. We are in a business where the assets are depleting in nature so in order to sustain our business we need to have more number of assets. One term that is very important in our business is reserve replacement. Whatever underlined oil and gas reserve we have depletes with its production and as company we need to ensure replacement of those by adding new assets either through exploratory efforts or through organic or inorganic activities. So these help us in sustaining and of course one has to look for growth to increase their reserve profiles.
RS: ONGC per se on a standalone basis is a zero debt company. We have enough liquidity to take care of our investments for the next 3-4 years. But to integrate the growth plan of the group we have started initiatives like the petrochemicals at Bhopal with Rs.150 billion investments. It is a SPV where ONGC has 26% equity and the debt-equity ratio is 2:1. Thus there is a large amount of debt involved. So we have tied up with a consortium of around 20 banks to support the almost Rs.80 billion debt. For MRPL expansion, here too, we have enough financial comforts by various banks. We are looking to make an investment in aromatics in Mangalore. OVL too has borrowing of about Rs.50 billion, thus the total borrowing adds up to around Rs.250 billion.
B&E: Please throw some light on your various overseas acquisitions specifically Imperial and the related criticism?
RS: We are already operating in 17 countries and our focus has been the African continent, Latin American countries, Middle East are our pre-dominant areas of operation. The Imperial acquisition has been a very good purchase from the strategic point of view. The acquisition came under a lot of criticism at the time of crude prices crash because in the case of OVL entities there is no system of subsidy sharing so the natural hedge is not available. So there was huge criticism that this transaction would result in heavy losses but we have been maintaining strong fundamentals which is likely to shield us against the price crash. The volatility in the prices was not based on fundamentals as there were no reasons for prices to sky-rocket to $147 per barrel but again there was no reason for them to crash either.
B&E: ONGC has adopted inorganic activities as a major way to grow and expand, is it a growth or survival strategy and why?
RS: M&A is both a growth and survival strategy for ONGC. We are in a business where the assets are depleting in nature so in order to sustain our business we need to have more number of assets. One term that is very important in our business is reserve replacement. Whatever underlined oil and gas reserve we have depletes with its production and as company we need to ensure replacement of those by adding new assets either through exploratory efforts or through organic or inorganic activities. So these help us in sustaining and of course one has to look for growth to increase their reserve profiles.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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