ONGC in talks with petrochemical companies to sell 25% stake in OPaL

ONGC has approached domestic and middle eastern companies, and has held talks with several foreign firms in the past


ONGC and Gail hold 44% each in OPaL, and GSPC holds the rest. Photo: Reuters
ONGC and Gail hold 44% each in OPaL, and GSPC holds the rest. Photo: Reuters

Mumbai: ONGC Petro additions Ltd (OPaL) is in talks with local and overseas petrochemical companies to sell as much as 25% in the company, three Oil and Natural Gas Corp. Ltd (ONGC) officials familiar with the development said.

The company is jointly owned by ONGC, GAIL (India) Ltd and Gujarat State Petroleum Corp. Ltd (GSPC). ONGC and GAIL hold 44% each in OPaL, and GSPC holds the rest.

ONGC also plans to sell shares to the public OPaL in a few years from now. Post the stake sale and the listing, ONGC said the envisaged equity structure would be: ONGC (26%), GAIL (15.5%), GSPC (0.5%), other public sector companies (8%), strategic investor 25%, and public shareholding (25%).

“We are in discussions with PSU (public sector undertaking) players as well as petrochemical players in the Middle East for taking up to a 25% stake in the project,” said one of the three ONGC officials cited above. He declined to disclose the names of the companies that ONGC has approached for the stake sale.

Two of the ONGC officials cited above, however, said Saudi Aramco is one of the companies ONGC is in talks with.

An email sent to Saudi Aramco last week remained unanswered.

“OPaL is looking for a strategic investor for a portion of the balance untied equity who could bring value to the project,” said an ONGC spokesperson, in reply to an email. The $4.5 billion mega petrochemical project is located at Dahej, Gujarat.

“As we fully operationalize OPaL, ONGC expects appropriate value from the offtake of equity,” said the second ONGC official cited above.

The company has in the past held talks with several foreign firms for a stake sale but talks were stuck due to several delays in the project. The project was to be commissioned in 2011.

The project has been delayed, leading to cost overruns. The plant was initially estimated to cost Rs.12,440 crore, but since then the cost has gone up to Rs.27,011 crore so far. OPaL is also in talks with private equity firms to offload stake in the company.

“They had met investment banks a month back as they are looking to raise nearly Rs.250-300 crore by selling stake to a private equity fund,” said a person who had met ONGC officials to seek a mandate for the process.

“They are yet to formalize the launch process,” the person added. OPaL’s petrochemical complex houses India’s largest greenfield single-location, dual-feed cracker unit. It has a capacity of cracking gaseous and liquid feed to produce 1,100 kilo tonnes per annum (ktpa) ethylene that can produce a wide spectrum of chemicals.

The company recently procured propylene, a principal feedstock, to start operations of its polyproylene unit.

OPaL plans to sell its products under the brand name, OPaLENE, and plans to export at least 40% of its products to the overseas markets.

With OPaL commissioning its plant, the petrochemicals business will get more competitive in the domestic as well as international market. OPaL will be competing with Indian Oil Corp. Ltd, Reliance Industries Ltd, ONGC Mangalore Petrochemicals Ltd (OMPL) and Haldia Petrochemicals Ltd which export petrochemical products in the international market. Reliance Industries is among world’s largest producers of petrochemicals.

Indian Oil Corp., India’s largest state-run refiner, is also looking at petrochemicals as the next segment of growth. Indian Oil plans to invest Rs.30,000 crore in the petrochemicals segment in the next few years.

“OPaL’s SEZ (special economic zone) status will benefit the company as it would export majority of its product in the international market. Also, its SEZ status would allow it higher pricing in the market bring in some element of competition for existing petrochemical exporters like us,” said an official from Reliance Industries on the condition of anonymity.

According to Transparency Market Research (TMR), the global petrochemicals market is expected to exhibit a steady 6.8% compounded annual growth rate from 2014 to 2020, estimated to reach a valuation of $885 billion by the end of the forecast period.

China accounted for the largest segment of the global market in 2013, accounting for 25% of the demand from the global petrochemicals market.

India is the leader in the rest of Asia-Pacific, with increasing demand for products containing petrochemicals and the country’s flourishing manufacturing sector expected to propel the regional market for petrochemicals.

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