India's top oil explorer, state-run Oil and Natural Gas Corporation (ONGC), has seen its cash reserves plummet by more than 90 percent in one year, after it paid a record dividend and raised loans to fund the acquisition of a refiner as part of the government's plan to create an "oil major" in India.
ONGC's cash reserves have been nearly depleted, while its debt has grown over the past year, according to data compiled by Bloomberg.
As of March 31, 2018, ONGC had just US$148.5 million (10 billion Indian rupees) in cash reserves, down from almost US$1.9 billion (130 billion rupees) at the same time a year ago.
In the most recent financial year, ONGC paid its highest dividend ever, and acquired a 51.1-percent stake in HPCL held by the government of India, as part of the country's plan to create oil majors. The acquisition was worth US$5.48 billion (369 billion rupees), which ONGC partly funded with taking a bank loan.
"ONGC is heavily leveraged now," Aloke Kumar Banerjee, the former finance head of the company, told Bloomberg in an interview. "It's important for exploration companies to have sizable cash balance as buffer. It's a high-risk business," the former ONGC manager added.
According to current company officials who spoke to Bloomberg, ONGC has already used the cash it had for capital expenditures and acquisitions, and now needs an additional around US$312 million (21 billion rupees) for the final dividend payout for FY18. Related: Pullback In Oil Prices Provides An Opportunity
Yet, ONGC doesn't plan to take on more debt for this financial year's capex, the company officials told Bloomberg, noting that the expected cash flows through the year will be enough.
Despite the reduced cash reserves, ONGC has solid credit ratings by Moody's, mostly because it is majority held by the Indian government, which gives it easy access to the bank system in India and a sovereign assurance, Vikas Halan, senior vice president at Moody's, told Bloomberg.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More