ONGC close to acquiring Imperial Energy, says London paper; possible roadblock on GOI investment norms

Imperial Energy Plc rose in London trading on Friday following a report in the Financial Times that India's Oil and Natural Gas Corp (ONGC) is close to an agreement to buy the company for about $2.8 billion. However, the acquisition may run into some rough weather owing to contravention of certain norms set by the Indian government.

According to these norms, the board of directors of a navratna (one of the major nine state-owned companies) like ONGC does not have the power to allow investment of more than 15 per cent of its net worth in one project up to a maximum of Rs1,000 crore. The board's powers in terms of the overall investment limit in all projects put together is also capped at 30 per cent of its total net worth.

ONGC has already crossed the investment limit of Rs18,420 crore calculated at 30 per cent of its total net worth of Rs61,400 crore. According to company sources, ONGC's equity investments in its foreign investment arm ONGC Videsh Limited (OVL) through which it proposes to make this latest acquisition, has already touched Rs25,500 crore.

''The oversight happened mainly due to the assumption that ONGC's investments in OVL would not be counted against its (investment) limit as these investment proposals were cleared by the cabinet committee on economic affairs (CCEA),'' an oil ministry official said.

However, OVL is confident of a one-time waiver from the government in the larger interests of the country. Of more concern to OVL is the interest shown by China's Sinopec, and, possibly, Korea's KNOC in acquiring Imperial. (See: China's Sinopec competes with ONGC's $2.5-billion bid for UK's Imperial Energy)

With the prospect of a bidding war looming, shares of Imperial Energy climbed as much as 35 pence, or 2.9 per cent, to 1,243 pence and traded up 1.9 per cent at 1,231 pence at 11:17 A.M. London time.

One of the state-controlled Russian energy companies, either OAO Gazprom or OAO Rosneft, is also likely to be involved in any transaction, the FT had reported. Earlier, market sources had indicated that ONGC may take a Russian partner on board to garner political support for the deal. Although Imperial is a British firm, a deal involving Russian assets is unlikely to succeed without the blessings of the Moscow establishment.