April 23, 2018 / 1:57 AM / a year ago

ONGC targets onshore dollars

* Loans: Oil giant’s US$1bn borrowing to test foreign currency liquidity

By Prakash Chakravarti

HONG KONG, April 23 (IFR) - India’s biggest oil explorer Oil and Natural Gas Corp is looking to raise US$1bn in the onshore market, in the first big deal to target foreign-currency deposits with domestic lenders.

The one-year loan would set a benchmark for size and pricing in the onshore US dollar market, where financings typically come in small sizes of US$30m–$50m.

It also offers Indian banks a rare opportunity to invest in one of the country’s top borrowers, since ONGC typically funds in dollars to match its cash flows.

Foreign currency non-resident (FNCR) accounts are fixed deposits in foreign currencies, such as US, Canadian and Australian dollars, yen, euros and pounds sterling belonging to non-resident Indians (NRI) or persons of Indian origin (PIO).

According to the Reserve Bank of India’s website, outstanding FCNR deposits as of February this year totalled US$21.84bn.

ONGC’s pursuit of the FCNR liquidity comes at a time when Indian banks are wrestling with non-performing loans in an environment of risk aversion, declining business opportunities and corporate governance issues.

“Indian banks are smarting from the recent developments around fraud and corporate governance issues that add to their NPL woes. ONGC’s deal brings a great opportunity to lend to one of the best credits from India,” said a senior loans banker in Singapore.

In mid-March, India’s central bank barred all lenders from issuing letters of undertaking – a form of credit guarantee at the centre of what has been dubbed the biggest fraud in Indian banking history. It followed revelations from Punjab National Bank, the country’s second-biggest state-owned lender, which said in February two jewellery groups had defrauded it of about US$2bn.

Earlier this month, rating agencies S&P and Fitch flagged the need to improve risk management and governance practices at Indian private-sector banks. Regulators have opened preliminary probes into possible corporate governance breaches at ICICI Bank , while Axis Bank said on April 9 that its long-serving CEO Shikha Sharma would step down at the end of 2018, earlier than expected.


Indian lenders, particularly state-owned banks, have compelling reasons to lap up ONGC’s FCNR loan. Exposure to ONGC, which has Triple A ratings domestically, carries only a 20% risk weighting and comes with rarity value as the company hardly borrows onshore.

Furthermore, following the recent developments, Indian banks have turned cautious on lending in general and opportunities have been few and far between for them offshore.

Tata Steel’s US$1.86bn-equivalent six-year refinancing launched earlier this month is a good example of their hunger for good quality assets with decent yields.

The offshore deal has seven Indian banks in its 23-strong arranger group, including unusual names such as Export-Import Bank of India and RBL Bank. Exim India has previously participated in offshore loans for Indian credits, while RBL is making its debut as an arranger.

Tata Steel, rated Ba3/BB–/BB, is offering top-level all-in pricing of 218bp and 210bp based on interest margins of 200bp over Libor/Euribor and average lives of five years.

Pricing in the offshore loan markets for top-tier Indian credits has been in a downward trend for a long time, which ONGC’s overseas arm, ONGC Videsh, has taken advantage of frequently. In August, the wholly owned subsidiary, rated Baa1/BBB− (Moody’s/S&P), raised US$843m-equivalent, paying top-level all-in pricing of 102bp on the five-year US dollar portion and 62bp on the seven-year yen piece.

ONGC itself could borrow at extremely tight levels offshore, with some bankers estimating a five-year loan to pay around 50bp–60bp all-in. However, rules governing external commercial borrowings for Indian borrowers stipulate the use of proceeds, minimum average maturities and all-in pricing caps on the offshore loans. FCNR loans do not have any of these requirements.


Bankers familiar with the workings of the FCNR loan market said financings are mostly bilateral in nature with short tenors of less than three years. Pricing is 250bp–300bp over Libor or higher with the facilities featuring reset options for Libor as well as the interest margin.

“The fragmented, volatile and erratic nature of the FCNR deposits makes it hard to get a handle on the size of the market. FCNR deposits have never been a big force of liquidity and never in a syndicated format,” said one senior loan banker in Mumbai.

ONGC is raising the FCNR loan to partially refinance bilateral facilities from Indian banks totalling Rs180.6bn (US$2.84bn) signed in January that helped fund its Rs369.15bn purchase of the government’s 51.1% stake in HPCL, a downstream energy company.

ONGC is averse to raising rupee bonds because it earns its revenues in foreign currency. But should it decide to take that route, bankers said it could easily raise longer-tenor money at around 8.00%–8.50%. However, that would be far more expensive than the FCNR loan, which also provides a natural hedge for the company. (Reporting By Prakash Chakravarti; Editing by Chris Mangham and Vincent Baby)

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