ONGC Videsh Ltd, ONGC's subsidiary, is aggressively scouting for international acreages and it is anticipated that in the near future, there would be huge funding requirement over and above internal resources.
The company signed on Moody's for providing 'Issuer' rating ahead of a possible external commercial borrowing to fund OVL's huge requirement, industry sources said.
Further, ONGC has hired national credit raters, Crisil and ICRA for domestic rating to tap non-government provident funds, superannuation funds and gratuity funds.
These funds are allowed to invest up to 5 per cent of incremental accretions in shares of those companies that have an investment grade debt rating from at least two credit agencies.
ONGC chose Moody's over Standard & Poor's for 'Issuer' rating as the former was likely to provide a rating higher than sovereign rating which would enable the company to raise debt at a highly competitive rate of interest.
An ONGC note says funding of large acquisitions by OVL may not be possible out of internal accruals. The options to fund acquisitions abroad by OVL could be - OVL borrows directly or ONGC raises funds from the market either through fresh equity or through fresh borrowings and lends to OVL.
"In case OVL raises money directly, then interest cost would be higher. In fact, OVL would not be able to raise huge borrowings based on the strength of its own balance sheet," the note said.
OVL is eyeing acquisition of several medium-sized oil and gas firms in Central Asia, Africa and Eastern Europe and may need above $2-billion for each acquisition. Such huge fund requirement has forced the parent firm ONGC to get shareholders' approval for raising borrowings limit to Rs 65,000 crore (Rs 650 billion).
"Considering the fact that ONGC's existing equity base is quite large and the debt-equity ratio is 0.003:1, logically, ONGC should go for borrowings (preferably, external commercial borrowings) to meet such requirements," the note says.
ONGC plans to borrow on strength of its balance sheet and then lend to OVL. "The full first-time rating process typically takes 11 to 12 weeks," a source said adding ONGC has hired Citigroup as ratings advisor.
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