OIL India Ltd – The India Energy Demand solution

India’s energy situation in short is that it needs four times more oil than it produces, and thus domestic production has been a focus in India’s Infrastructure story since 2005

The OIL IPO band at Rs 950-1050 just ensures an IPO size of Rs 5000 Crores ($1.02 billion)  from 11% new shares and 10% sale of existing stakes of the Government, thus brining the post issue government stake to 78%, very close to the ideal target of 75% promoter stake for listed companies and allowing the government to take down further ownership at a later stage based on market determined prices. The government will further sell another 10% of its stake to IOC (5%), BPCL and HPCL.  The IPO monies would thus finance the company’s Cpex requirement for the next 2 years across its exploration contracts in Assam, Rajasthan ( new fields in management contract with Cairn – the first Production Sharing Contract) and even its overseas bids in Libya and Venezuela, not the ones in Nigeria.

OIL is the newest entrant in India’s energy story, following on the footsteps of ONGC Videsh and ONGC while it has purportedly on paper, more market friendly organization values and has reserves of $500 billion in the new NEPC VI fields.  However, It has relinquished interest in North Cachar and other Assam fields award in 2004.

In keeping with India’s Infrastructure story’s imperatives and as per the ever increasing financing gap of $384 billion at 2005 prices and $475 billion at current prices (as per EGOM estimates, India Infrastructure Report 2008, IDFC, 3i network) the issue has been super-sized. Unfortunately SEBI has still not uploaded any revised prospectus/offer document since the last one was filed for an issue half the size in December 2007. Since then, while India’s Oil subsidy bill has soared to over INR 100000 crores for both 2008 and 2009, OIL has managed its exploration and distribution activity safely to become profitable and is looking to fund the completion of its exploration projects through this issue. 

OIL will be critical to the FTSE India Infrastructure 30 index introduced in 2007 and ETFs around the same will be in high demand once the listing of these shares is completed as Institutional appetite for Indian public sector infrastructure stories will continue to be robust for the more than $10 billion to be raised in the six months since July 2009 and another $20 billion that may be raised in 2010. 

With Oil prices currently ruling at $70-75 and OPEC targeting an increase to $100, we are back in an inflationary situation where exporting 20% of our domestic reequirment though cash accretive is still not enough to bring down our costs, while increasing our domestic production remains slow and torturous. OIL remains immune to the imbalance however and will be free to purchase and sell at market prices using more efficient trading mechanisms than currently practiced by the consequent coalitions and thus its financials are likely to be strong. However, they are unlikely to be on par with a private sector Cairn Energy or Reliance in terms of these efficiencies.  OIL does share the subsidy bill as under recovery, but it is still likely that because of it being a new corporate, itwill suffer only minor losses on the said account and IOC and HPCL wil maintain primacy with regards to paying the bills

The LNG/LPG situation however in the market today can be easily capitalized by OIL, where neither $4.20 or $2.34 is a fair price, global markets ruling currently at $3.45 ( mid-August 2009) It has reserves of 77 billion cu. mtrs of Gas including contingency reserves primarily in the Rajasthan basin

Also, it had initially suffered losses in production in the Dikom fields with 2007 production being 2.23 million barrels, less than half of its 1999 production. Still, in the face of global competition it has secured 21 of the 46 fields awarded by the government till date under NELP. The Rajasthan fields that it operates under PSC cover nearly 4000 sq. kms. They are a first step in diversification of OIL’s over dependence on Asssam and the single 1220 km pipeline from the terrorist infested areas there in. Of its last known turnover of $1.2 billion, costs include 20% royalties for crude oil and 10% royalties for natural gas and offshore oil, and underrecovery from crude supplied to public sector refineries which is 80% of the company’s revenue. they also pay approx 5% of this revenue to the Assam government in taxes on oil bearing land. Apart from owning the pipeline from Assam ( 44 million barrels in 2007)  it also owns 26% in NRL and 10% in BCPL refineries. the current Capex includes exploratory wells and 2D and 3D seismic data acquisition in the fields being developed of the 38000 sq kms awarded to OIL till date ( 75% thru NELP )

[Tags India, India Infrastructure, IPOs, OIL, ETF, EEM, Emerging Markets, Russia, China, Energy]

[Category India, India Infrastructure]

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NMDC update (Divestment + Infrastructure = Mega IPO Tickets)

As per current Ministry of Steel meetings, the NMDC stake sale is likely to be of 15% in which case it could easily be over Rs 2000 crores ($400m) at CMP of 375 ( $7.50) As also the ones for Adani Power, Godrej, Indiabulls Power..i think it can happen given that each will have $40-50 million from retail investors, but it requires disciplined Institutional Investors who believe the India story..anyway, this kind of volume has not been done ever before in the same year, but then this is the era of Infrastructure.

Foreign portfolio investors have poured in $8.7 billion since April, while speculation is already rife for PSU divestment in Coal India and National Hydro Electric Corp in the Power sector, each easily worth a $1 b for 15-20% stake. Also SBI Infrastructure fund with Macquarie has raised its bucket size to 1.5 billion adding another $500m.

A dani Power is raising $600m. NHPC is going first planning to issue more than 70 crore shares of Rs 10 par value for offer including a existing 5% stake unlikely to be issued at par(despite reports) to net 2500 crores for 15% of the company capital NHPC also plans to invest Rs 28,000 crore by 2012 to position itself as over 10,000 MW utility. At present, its generation capacity stands at 5,200 MW. The proceeds from the IPO would partly be utilised to finance the expansions.

Indiabulls Power seems to have issued earlier capital at a premium and a current QIP at 25% of the Original at Par to raise a further 200 Cr ( $40m) Thus it is curently sitting on unutilised capital of 2200 crores ($440m). It has two Power plants planned in Maharashtra with the first in Nasik of 1335MW capacity (shld cost between (5500 cr to 7000 cr OR $1.1-1.4 billion) It is unlikely to try for any considerable premium if it comes first.

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NHPC and OIL divestment: Upcoming IPOs

State-owned Oil India Ltd and National Hydroelectric Power Corporation (NHPC) will tap the capital market with their initial public offering (IPOs) in August/September this fiscal. This was stated by the Finance Secretary, Mr Ashok Chawla, at a post-Budget press conference here today.

The other 4 public units for Divestment will be identified by the designated Deptt of Divestment. The budgeted 1854 Crores ($371 million) will flow from the Offers of OIL and NHPC.  Ashok also confirmed that the Government has decided to retain median Cenvat rate at 8 per cent and the service tax rate at 10 per cent. A detailed budget anaysis is available from us The stimulus packages last fiscal brought the Excise collection down to $21.6 billion from a targeted $27.8 billion. Riding on expected increase in economic growth, the Budget 2009-10 has also projected a Rs 10,000-crore increase in surcharge on corporate tax. In 2009-10, the Government expects to collect surcharge (corporation tax) of Rs 26,090 crore compared with Rs 16,001 crore in the previous year, reports The Hindu Business Line. (http://moneycontrol.com)

OIL is engaged in the exploration, production and development of oil and natural gas. In addition, the company is engaged in the transportation of crude oil and production of LPG. It owns and operates 13 drilling rigs and 14 work-over rigs. The company’s operations are spread across India, Iran, Libya, Gabon, Sudan, Yemen and Nigeria. It is a wholly owned Indian government enterprise and holds 26% equity in Numaligarh Refinery Ltd. OIL has a capital base of Rs 214 crore and claims a Return on Networth of 23% with a EPS of Rs 101 ( $2+) which is extremely encouraging on a net worth of Rs 10000 Crores. Its last reported profit (03/09) was Rs 2161 Crores ($432 million)

National Hydroelectric Power Corporation is one of the largest organisation for hydro-power development in India having constructed 13 hydro-power projects in India and abroad with a total  installed capacity of 3694.35 MW (Including the projects under joint venture).  With an  asset value of Rs. 2,00,000 million NHPC has planned to add 2480 MW of power during Xth plan and 6297 MW of power during XIth plan. NHPC’s capabilities include the complete spectrum of hydropower development from concept to commissioning.

NHPC plans to issue 10% new shares and 5% would be divested by the Government. The issue size is speculated to be Rs 2500 Crores ($500 million) NHPC plans to spend Rs 28,000 crore to more than double generating capacity by 2012. Of this, Rs 11,000 crore would have come from its own cash and the IPO and Rs 17,000 crore from borrowings.

The company will offer 168 crore shares, consisting of 112 crore new shares and 55.91 crore shares owned by the Indian government, according to the offer document submitted to the Sebi. Hydro Power has higher efficiency of 90% compared to Coal and Gas (35-50%) but the availability of water resources is scarce because of the natural changes in reservoirs from uneven rains

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The issue size is 167 crore shares at a price band of Rs 30 -36 for an issue size of Rs 6000 crore at the upper end and likely to receive a similar response as Adani. Though realisations for NHPC older plants are lower and water supply a challenge due to earlier monsoons. 4000 out of 6000 crores will go to existing plants and 2000 crores for new plants. NHPC has also kept a greenshoe option of 15%