World's Energy

25 August, 2008 - Upstream OnLine - Indian state-run outfit Oil & Natural Gas Corporation’s (ONGC's) advances to buy UK-listed Imperial Energy for around $2.8 billion may hit a stumbling block as it has already exhausted its investment limit under India’s regulations. The hitch in the closely watched bid could open the door to other suitors for Imperial, a report published in India's Economic times said. According to Indian government rules, so-called "Navratna" state-owned companies are not allowed to invest more than 15% of net worth in one project up to a maximum of $2.3 billion. Total investment in all projects put together is also capped at 30% of the company's total net worth. Company sources told the paper that ONGC’s equity investments in its foreign investment arm, ONGC Videsh (OVL), which is leading the Imperial bid, are well beyond the limit. Navratna refers to nine government-identified public sector enterprises that in 1997 were given enhanced autonomy and increased power over finances and strategic ventures. OVL is hopeful that the Cabinet committee on economic affairs will make an exception in the interest of the country’s energy security. OVL plans to buy Imperial, which has assets in Russia and Kazakhstan, through an investment vehicle and fund the deal through equity and debt. “The company has asked the government to relax the 30% investment limit (of ONGC) in this case, but we are not seeking any budgetary support,” an OVL official was quoted as saying. Besides ONGC, China’s Sinopec and South Korea's Korea National Oil Corporation (KNOC), have also reportedly expressed an interest in Imperial. But a KNOC source close to M&A operations said today that the state-run outfit has never expressed interest in buying Imperial. "We have never been approached, nor have we considered buying Imperial Energy," the official told Reuters. “China is known to be aggressive and is waiting for ONGC to open its cards. We expect Sinopec to offer a bid that is at least around 15% higher than OVL's improved bid,” the Economic Times reported a market source saying. However, one investment banker cast doubt on Sinopec’s chances and touted ONGC as the likely winner. “What we’ve heard from the market is that Sinopec looked at it but they didn’t really go through with it in any serious form. The talk in the market about Sinopec is overblown.” ONGC was reported to be prepared to pay up to $3.5 billion for Imperial. Industry analysts believe that the latest interest is part of efforts from Imperial’s directors to attract competitive bids to increase the price that might finally be paid for the company. They add that any bidding contest will be limited in terms of valuation premiums as the potential winner is likely to have to sell an option for a sizable stake in Imperial to either Russian state-controlled gas monopoly Gazprom or to Rosneft, which in turn might be unwilling to pay a high premium for it.