ONGC issues rare dollar bond to repay bridge loan

Asian borrowers are turning to bonds to fund offshore acquisitions, with ONGC being the latest to jump on the bandwagon.
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ONGC is funding an acquisition in Azerbaijan
<div style="text-align: left;"> ONGC is funding an acquisition in Azerbaijan </div>

India’s national oil company Oil and Natural Gas Corp (ONGC) issued a rare $800 million dual-tranche bond on Monday night. The proceeds will be used to refinance a bridge loan taken for its acquisition of a stake in energy assets in Azerbaijan from New York-based Hess.

ONGC is 69%-owned by the Indian government and a rare name in debt markets. According to Dealogic, it has not issued a dollar bond since 1995.

Many Asian borrowers such as ONGC are now tapping debt markets after long absences, or for the first time, as bank lending is constrained. Meanwhile, funding levels in the bond market have never been cheaper, and long tenors and looser covenants are available. Borrowers have also hit debt markets to fund their merger and acquisition activity. This month, two Chinese giants CNPC and Sinopec both turned to debt markets to fund offshore acquisitions, and ONGC is the latest behemoth to jump on the bandwagon.

The company issued a $300 million five-year bond and a $500 million 10-year bond, which was offered to Asian, European and offshore US investors. The oil and gas sector has a strong following among onshore US accounts, so ONGC could probably have achieved tighter pricing by tapping the onshore US market, according to a source. However, he added that the company wanted to get the funds on a tight timeline to repay the bridge loan and hence opted for the quicker Reg-S route.

The bonds were issued by ONGC Videsh — the subsidiary that handles ONGC’s foreign operations — and guaranteed by ONGC. The five-year bonds priced at Treasuries plus 190bp and the 10-year bonds priced at Treasuries plus 210bp. The bonds traded slightly wider on Tuesday afternoon, with the 2018s quoted at Treasuries plus 193bp/191bp, slightly wide of reoffer and the 2023s quoted at Treasuries plus 210bp/208bp, around reoffer.

ONGC is rated Baa2 by Moody’s, the same rating as Reliance Industries and BBB- by S&P, one notch lower than Reliance. It is one of the few state-owned enterprises to have pierced the sovereign ceiling in Asia, Malaysia’s Petronas being another example. According to a source, ONGC’s bonds priced through Reliance Industries’.

The five-year bonds attracted an order book of $1.1 billion and the 10-year tranche a $1.8 billion order book. For the five-year tranche, Asian investors were allocated 72%, European investors 18%, and offshore US investors 10%. Fund managers were allocated 60%, banks 23%, private banks 5%, insurance 9% and sovereign wealth funds 3%. For the 10-year tranche, Asian investors were allocated 69%, European investors 27% and offshore US investors 4%. Fund managers were allocated 54%, banks 25%, private banks 4% and insurance 17%.

Citi, Deutsche Bank and Royal Bank of Scotland were joint bookrunners.

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