CRISIL reaffirms rating on ONGC following Imperial Energy acquisition announcement

CRISIL has reaffirmed its rating on the Rs500-million non-convertible debenture issue of Oil and Natural Gas Corporation Ltd (ONGC) at 'AAA/Stable' on . This follows the announcement by the board of Imperial Energy Corporation Plc (Imperial Energy) that it has given its consent to the acquisition of Imperial Energy by ONGC through its subsidiary ONGC Videsh Ltd (OVL).

Imperial Energy has E&P assets in the Tomsk region of the Russian Federation and had the equivalent of 920 million barrels of oil in proved and probable (P2) reserves as of December 31, 2007. The company reported net sales of $19.9 million and net loss of $42 million for the year ended 31 December 2007.

The rating continues to reflect ONGC's dominant position in the Indian oil and gas industry, long life of its reserves, excellent technical capabilities, and its strategic importance to the Government of India (GoI).

OVL has reached an agreement with Imperial Energy on the terms of a recommended pre-conditional cash offer for the entire share capital and convertible bonds of Imperial Energy. The offer price for each share has been decided at 1250 pence, making the value of the whole transaction GBP1.4 billion. The board of Imperial Energy has recommended the offer to its shareholders and has agreed to tender its holding of 6.3 per cent in the company.

However, the transaction is subject to approval from the shareholders and Russian Federal Law. CRISIL believes that the acquisition will not have a material impact on ONGC's credit profile. ONGC has a strong credit profile: its adjusted debt and gearing stood at Rs. 9.4 billion and 0.01 times, respectively, as on March 31, 2008. It had a cash and bank balance of Rs.186.5 billion as on this date.

CRISIL believes that ONGC will be able to maintain its leadership position in the domestic exploration and production (E&P) industry, despite increasing competition. CRISIL also expects ONGC to maintain its strong financial profile, notwithstanding its aggressive medium-term growth plans.

ONGC is India's largest E&P company; it explores, develops, and produces crude oil and natural gas in India and internationally. ONGC's proven crude oil and natural gas reserves account for an estimated 75 per cent of India's total reserves. Through its acquisition of Mangalore Refinery and Petrochemicals Limited (AAA/Stable) in 2003, the company integrated forward into downstream refining and marketing. ONGC has co-promoted pipeline, liquefied natural gas, and power projects as joint ventures.

THe In dian government is ONGC's majority shareholder, holding 74.14 per cent of the company's equity capital. ONGC functions under the administrative control of the Ministry of Petroleum and Natural Gas. For 2007-08 (refers to financial year, April 1 to March 31), ONGC reported a profit after tax (PAT) of Rs.199 billion on sales of Rs.968 billion, as against a PAT and sales of Rs.178 billion and Rs.823 billion, respectively, in the previous year (all figures on a consolidated basis).