In a significant development for India’s petrochemical industry, the Oil and Natural Gas Corporation (ONGC) has announced plans to inject a substantial investment of approximately Rs.150 billion ($1.8 billion) into ONGC Petro-additions Limited (OPaL). This strategic move will substantially increase ONGC’s ownership stake in OPaL from 49.4% to a commanding 95%. As part of OPaL’s ongoing financial restructuring, this infusion of funds holds the potential to reshape the dynamics of India’s petrochemical landscape.

Total Acquisition Cost

The estimated total cost of acquisition for ONGC in this strategic move stands at Rs.148.6 billion. Following the restructuring, the Gas Authority of India Limited (GAIL) and Gujarat State Petrochemical Corporation (GSPC) will collectively retain a 5% stake in OPaL.

Addressing Challenges

OPaL has been grappling with financial challenges since its inception, accumulating losses of Rs.130 billion by March 2023. Despite these setbacks, the company generated Rs.146.3 billion in revenue in the fiscal year ending March 2023, with an impressive 82% capacity utilization rate. To address its financial difficulties and unlock its full potential, OPaL initiated a restructuring process aimed at securing the necessary investments.

Restructuring Plan

As part of the restructuring plan, ONGC is set to convert share warrants issued by OPaL into equity shares, incurring a cost of Rs.860 million. Additionally, ONGC will repurchase nearly Rs.77.8 billion worth of compulsory convertible debentures issued by OPaL from financial institutions. Furthermore, ONGC plans to invest Rs.70 billion in equity securities of OPaL, a move that will secure a commanding 95% stake, effectively making OPaL a subsidiary of ONGC.

Cementing Position

This financial overhaul is expected to significantly enhance ONGC’s position in OPaL and contribute to OPaL’s improved profitability. With a more substantial ownership stake and increased financial support, ONGC aims to steer OPaL towards a path of sustained growth and profitability.

OFB’s Insight

ONGC’s substantial investment in OPaL marks a pivotal moment in India’s petrochemical industry. As ONGC assumes a more commanding role in OPaL’s operations, the potential for growth and innovation in the sector becomes increasingly promising. This strategic move underscores ONGC’s commitment to fostering growth and profitability within the Indian petrochemical landscape, setting the stage for a brighter future in the industry.