ONGC Videsh plans to raise $525 million to redeem bonds set to mature soon

ONGC Videsh is in the process of raising $525 million in foreign currency loans from a mix of domestic and foreign lenders to repay bonds maturing next month, according to people with knowledge of the matter.

ONGC Videsh, the overseas arm of the state-run explorer Oil and Natural Gas Corp, is in talks with half a dozen foreign and domestic banks for the loan and expects to close the deal this month and draw down next month, people cited above said.

The loan will likely come with about 1.5% interest rate and a five-year term, the people said. The company is borrowing from banks instead of issuing fresh bonds as it would help save about 1 percentage point in interest cost, they said. ONGC Videsh plans to use the new loan of $525 million and internal resources to repay the bonds. The company had raised Euro 525 million ($625 million at the current exchange rate) through a 7-year bond issue in July 2014 to partly finance its acquisition of $4.12 billion worth of stake in the Mozambique block. These bonds, bearing a fixed coupon of 2.75% per annum and guaranteed by parent ONGC, are up for repayment in July. ONGC Videsh raised around $700 million in debt to repay another loan of $775 million last November.

It had acquired a 16% stake in Mozambique's offshore Rovuma Area 1 in two transactions in 2013. French energy giant Total, the operator of the $20 billion liquefied natural gas (LNG) project in Mozambique, declared force majeure in April following a rise in violence close to the project site.

The Mozambique LNG project was initially expected to start production by 2018 but has been delayed for years due to a combination of factors stretching from an oversupplied LNG market to delayed project financing and local violence.

Meanwhile, ONGC Videsh is also awaiting the lifting of the US sanctions on Iran, which will help resume discussion on developing the Farzad B gas field in the Islamic Republic. ONGC had discovered Farzad B more than a decade ago but has been unable to develop it due to years of sanctions on Iran. Last month, Iran awarded the contract to develop Farzad to a local company but this still leaves the door open for ONGC Videsh to enter the project with a 30% stake.