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India’s energy race with China sparks $4 billion loan rush - Livemint
Mumbai/New Delhi: Oil and Natural Gas Corp. Ltd (ONGC), Indias largest explorer, is leading a rebound in overseas loans from a three-year low as local energy companies compete with Chinese rivals including China Petroleum and Chemical Corp. for assets.
State-owned oil explorers and refiners are seeking at least $3.7 billion of bank facilities overseas this quarter, compared with $2.4 billion raised by all local borrowers in the three months through 30 September, data compiled by Bloomberg show. Interest margins for US dollar-denominated loans in India average 251 basis points this year versus 269 basis points for companies in the rest of Asia outside Japan. Companies delayed financing plans in June amid speculation the Federal Reserve would begin tapering asset purchases last month.
Explorers including ONGC and Oil India Ltd are seeking assets from Africa to Brazil to meet a demand for energy in the worlds second-most populous nation thats expected to surge almost 40% by 2020 from 2010 levels. Offshore borrowing has become more attractive after the Reserve Bank of India last month raised its benchmark repurchase rate for the first time since 2011.
We can save as much as 4% by borrowing in dollars rather than rupees in the current market, said S.P. Garg, finance director at ONGC Videsh Ltd, the overseas unit of ONGC. For us, US dollar borrowings offer a natural hedge since our revenue is in dollars. Even for other Indian borrowers, its still cheaper to go overseas.
Mozambique waters
Foreign-currency loan volumes in India last quarter were the least since the second quarter of 2010, when they dropped to $1.7 billion, according to data compiled by Bloomberg.
ONGC Videsh and Oil India plan to use as much as $2.65 billion in bank debt to purchase a stake in a gas field in the waters off Mozambique. New Delhi-based ONGC has acquired at least $5.5 billion of oil and gas assets outside India since September 2012 as it seeks to raise overseas production more than sixfold by 2030.
State-owned refiners Indian Oil Corp. Ltd and Hindustan Petroleum Corp. Ltd, whose two coastal refineries account for about 10% of the nations refining capacity, plan a total of $800 million of dollar-denominated loans.
Indian companies have announced $13.6 billion of overseas oil and gas acquisitions in the past five years, compared with $107 billion by Chinese companies, according to data compiled by Bloomberg. ONGC, in conjunction with Royal Dutch Shell Plc, last month blocked Beijing-based Sinochem Groups bid to buy a stake in a Brazilian oilfield, people with knowledge of the matter said.
Funding disadvantage
Indian energy borrowers definitely face some constraints because oil and gas assets are usually big-ticket deals and banks have restrictions on single-borrower exposure limits based on their capital funds, David Rasquinha, the Mumbai-based executive director at Export-Import Bank of India, said in e- mailed response to questions on 15 October. Chinese firms often operate as an arm of the state and can access much larger funding from their banks.
ONGC has for years lost out to Chinese competitors on assets from Central Asia to Angola. In July it missed a $5 billion bid to buy an 8.4% stake in Kazakhstans biggest oilfield after the government exercised its right to step in and purchase it in place of the company. Kazakhstan then sold the stake in the Kashagan field to China National Petroleum Corp..
Conservative measures
Seven years ago, the Chinese company also beat ONGC by paying $4.18 billion for PetroKazakhstan Inc., then Chinas biggest overseas oil deal.
Chinese companies are financially stronger than Indian acquirers and receive liberal funding from banks, Prabal Banerjee, the Mumbai-based president for international finance at Essar Group, said. Banks are forthcoming to finance acquisitions by Indian energy companies too, but are now asking for a higher equity contribution from borrowers and a lower net debt-to-earnings before interest, taxes, depreciation and amortization as a conservative measure.
ONGC Videsh is in the process of seeking a $1.5 billion bridge loan to finance its share of the 10% it bought in a Mozambique gas field with Oil India, ONGCs Garg said. The facility will be replaced with a US dollar-denominated bond in a year, he said.
Favorable conditions
The explorer also needs to finance an additional 10% it acquired in the same block for $2.64 billion from Anadarko Petroleum Corp. in August. Its still working on funding options for that and may decide to return to the dollar debt market, Garg said.
Lenders are positive about Indian credit, Rajiv Datt, the New Delhi-based managing director of Indian Railway Finance Corp., said in a phone interview 11 October. Conditions are favourable and more Indian companies will look to raise dollar loans.
The finance unit of Asias oldest rail network plans to borrow $300 million in a five-year facility, Datt said on 16 September. Rural Electrification Corp., Indias state-owned lender to electricity companies, will pay an all-in rate, which includes margins and fees, of 204 basis points more than the London interbank offered rate on a $250 million, five-year bullet facility, a person familiar with the matter said earlier this month.
Rupee volatility
Foreign-currency borrowings also help guard against increased volatility in the rupee, which is Asias third worst- performing currency this year weakening 11.1% against the dollar. The rupee sank to an all-time low in August after Indias current-account deficit grew to a record $88 billion in the fiscal year ended March 2013, threatening to push up inflation in a nation that imports 80% of its oil. It was trading at 61.8450 per dollar on Wednesday.
Indias creditworthiness has weakened this half. The cost to insure the notes of State Bank of India, a proxy for the sovereign, against non-payment for five years climbed 27.5 basis points since 30 June to 302.5 basis points on 15 October, CMA data show.
The World Bank on Wednesday cut Indias gross domestic product forecast for fiscal year 2014 to 4.7% from 6.1%. It said expansion will rebound strongly in the second half of this fiscal year, helped by farm output and the impact of a weaker rupee on exports.
Loans pipeline
The yield on the 7.16% government bonds due May 2023 has risen to 8.6% on 15 October from 7.462% at the end of June. Markets in India were closed on Wednesday for a public holiday.
The pick-up in offshore facilities comes as rupee- denominated loans also gather pace. Jindal Steel and Power Ltd and Hindalco Industries Ltd led borrowings of Rs.43,200 crore ($7 billion) last quarter, a 14% increase from the three months to 30 June, Bloomberg-compiled data show. Loans equivalent to about $7.3 billion in any currency are in the pipeline in India, preliminary data show.
Oil companies are leading the fundraising and more Indian corporates will borrow overseas as local rates stay near the top of the cycle, said Chokkalingam G., the chief investment officer at Centrum Wealth Management Ltd in Mumbai, which manages about $323 million in assets. ONGC needs to be aggressive on acquisitions because recovering economies will push up oil prices in the future, making assets that much more expensive.
Mumbai/New Delhi: Oil and Natural Gas Corp. Ltd (ONGC), Indias largest explorer, is leading a rebound in overseas loans from a three-year low as local energy companies compete with Chinese rivals including China Petroleum and Chemical Corp. for assets.
State-owned oil explorers and refiners are seeking at least $3.7 billion of bank facilities overseas this quarter, compared with $2.4 billion raised by all local borrowers in the three months through 30 September, data compiled by Bloomberg show. Interest margins for US dollar-denominated loans in India average 251 basis points this year versus 269 basis points for companies in the rest of Asia outside Japan. Companies delayed financing plans in June amid speculation the Federal Reserve would begin tapering asset purchases last month.
Explorers including ONGC and Oil India Ltd are seeking assets from Africa to Brazil to meet a demand for energy in the worlds second-most populous nation thats expected to surge almost 40% by 2020 from 2010 levels. Offshore borrowing has become more attractive after the Reserve Bank of India last month raised its benchmark repurchase rate for the first time since 2011.
We can save as much as 4% by borrowing in dollars rather than rupees in the current market, said S.P. Garg, finance director at ONGC Videsh Ltd, the overseas unit of ONGC. For us, US dollar borrowings offer a natural hedge since our revenue is in dollars. Even for other Indian borrowers, its still cheaper to go overseas.
Mozambique waters
Foreign-currency loan volumes in India last quarter were the least since the second quarter of 2010, when they dropped to $1.7 billion, according to data compiled by Bloomberg.
ONGC Videsh and Oil India plan to use as much as $2.65 billion in bank debt to purchase a stake in a gas field in the waters off Mozambique. New Delhi-based ONGC has acquired at least $5.5 billion of oil and gas assets outside India since September 2012 as it seeks to raise overseas production more than sixfold by 2030.
State-owned refiners Indian Oil Corp. Ltd and Hindustan Petroleum Corp. Ltd, whose two coastal refineries account for about 10% of the nations refining capacity, plan a total of $800 million of dollar-denominated loans.
Indian companies have announced $13.6 billion of overseas oil and gas acquisitions in the past five years, compared with $107 billion by Chinese companies, according to data compiled by Bloomberg. ONGC, in conjunction with Royal Dutch Shell Plc, last month blocked Beijing-based Sinochem Groups bid to buy a stake in a Brazilian oilfield, people with knowledge of the matter said.
Funding disadvantage
Indian energy borrowers definitely face some constraints because oil and gas assets are usually big-ticket deals and banks have restrictions on single-borrower exposure limits based on their capital funds, David Rasquinha, the Mumbai-based executive director at Export-Import Bank of India, said in e- mailed response to questions on 15 October. Chinese firms often operate as an arm of the state and can access much larger funding from their banks.
ONGC has for years lost out to Chinese competitors on assets from Central Asia to Angola. In July it missed a $5 billion bid to buy an 8.4% stake in Kazakhstans biggest oilfield after the government exercised its right to step in and purchase it in place of the company. Kazakhstan then sold the stake in the Kashagan field to China National Petroleum Corp..
Conservative measures
Seven years ago, the Chinese company also beat ONGC by paying $4.18 billion for PetroKazakhstan Inc., then Chinas biggest overseas oil deal.
Chinese companies are financially stronger than Indian acquirers and receive liberal funding from banks, Prabal Banerjee, the Mumbai-based president for international finance at Essar Group, said. Banks are forthcoming to finance acquisitions by Indian energy companies too, but are now asking for a higher equity contribution from borrowers and a lower net debt-to-earnings before interest, taxes, depreciation and amortization as a conservative measure.
ONGC Videsh is in the process of seeking a $1.5 billion bridge loan to finance its share of the 10% it bought in a Mozambique gas field with Oil India, ONGCs Garg said. The facility will be replaced with a US dollar-denominated bond in a year, he said.
Favorable conditions
The explorer also needs to finance an additional 10% it acquired in the same block for $2.64 billion from Anadarko Petroleum Corp. in August. Its still working on funding options for that and may decide to return to the dollar debt market, Garg said.
Lenders are positive about Indian credit, Rajiv Datt, the New Delhi-based managing director of Indian Railway Finance Corp., said in a phone interview 11 October. Conditions are favourable and more Indian companies will look to raise dollar loans.
The finance unit of Asias oldest rail network plans to borrow $300 million in a five-year facility, Datt said on 16 September. Rural Electrification Corp., Indias state-owned lender to electricity companies, will pay an all-in rate, which includes margins and fees, of 204 basis points more than the London interbank offered rate on a $250 million, five-year bullet facility, a person familiar with the matter said earlier this month.
Rupee volatility
Foreign-currency borrowings also help guard against increased volatility in the rupee, which is Asias third worst- performing currency this year weakening 11.1% against the dollar. The rupee sank to an all-time low in August after Indias current-account deficit grew to a record $88 billion in the fiscal year ended March 2013, threatening to push up inflation in a nation that imports 80% of its oil. It was trading at 61.8450 per dollar on Wednesday.
Indias creditworthiness has weakened this half. The cost to insure the notes of State Bank of India, a proxy for the sovereign, against non-payment for five years climbed 27.5 basis points since 30 June to 302.5 basis points on 15 October, CMA data show.
The World Bank on Wednesday cut Indias gross domestic product forecast for fiscal year 2014 to 4.7% from 6.1%. It said expansion will rebound strongly in the second half of this fiscal year, helped by farm output and the impact of a weaker rupee on exports.
Loans pipeline
The yield on the 7.16% government bonds due May 2023 has risen to 8.6% on 15 October from 7.462% at the end of June. Markets in India were closed on Wednesday for a public holiday.
The pick-up in offshore facilities comes as rupee- denominated loans also gather pace. Jindal Steel and Power Ltd and Hindalco Industries Ltd led borrowings of Rs.43,200 crore ($7 billion) last quarter, a 14% increase from the three months to 30 June, Bloomberg-compiled data show. Loans equivalent to about $7.3 billion in any currency are in the pipeline in India, preliminary data show.
Oil companies are leading the fundraising and more Indian corporates will borrow overseas as local rates stay near the top of the cycle, said Chokkalingam G., the chief investment officer at Centrum Wealth Management Ltd in Mumbai, which manages about $323 million in assets. ONGC needs to be aggressive on acquisitions because recovering economies will push up oil prices in the future, making assets that much more expensive.
. Good going India .
