India funds Siberian oil quest with its cheapest loans in decade

June 10: As energy consumption explodes in the world’s second-most populous nation, India’s stateowned oil companies are taking advantage of the lowest overseas loan costs in a decade to finance exploration in the wilderness of Siberia.

ONGC Videsh signed a $1.16 billion nine-month bridge loan on May 19 to fund the purchase of a 15% stake in Vankor field in Siberia from Russia’s Rosneft, data compiled by Bloomberg show.

Indian Oil Corp plans a $1.2 billion fund-raising for Russian investments in three or four months, including short- and long-term loans, Finance Director AK Sharma said in an interview on Wednesday. The average margin over benchmark rates on non-rupee loans for Indian refiners and explorers was 74 basis points this year, the lowest since 2006, the data show.

“We expect this trend of overseas acquisitions to continue as upstream companies such as ONGC seek to fulfill their mandate to improve the nation’s oil security,” said Mehul Sukkawala, a Singapore-based analyst at S&P Global Ratings. “India’s government has taken significant measures to improve the operating environment for oil and gas firms.”

The country, which imports more than three quarters of its crude requirement, is expanding its energy assets overseas as the pace of economic growth in India outstrips other major nations. It consumed 4 million barrels a day last year, according to the International Energy Agency, and is expected to surpass Japan as the world’s third-largest oil user this year.

The funding for ONGC Videsh, the overseas unit of New Delhi-based Oil & Natural Gas Corp, accounts for the largest part of $1.6 billion in total overseas loans signed by Indian companies so far in 2016 for financing acquisitions, according to Bloomberg-compiled data.

It was closed at a margin of less than 85 basis points over the London interbank offered rate, according to people familiar with the matter. While six-month US dollar Libor touched a seven-year high of 0.9931% on May 31, it remains significantly lower than rates in India.

The three-month interbank rate for rupees was at 7.15% on Friday. Bloomberg