India's Largest Database on New Projects
Permission sought to allow insurers to invest in OVL
12 July 2010: The Union Ministry of Petroleum, in a recent letter, has requested the Union Ministry of Finance to allow insurance companies to invest their surplus funds in bonds issued by ONGC Videsh (OVL), the overseas arm of ONGC.
The letter has requested the Finance Ministry to consider issuing necessary clarification from the Insurance Division of the Ministry of Finance to Insurance regulator IRDA so that insurance companies are permitted to invest in bonds issued as well as to be issued by OVL in the future on the ground that OVL is a government company," according to sources.
The letter has also requested the finance ministry to interpret Section 27C of the Insurance Act, which says 'no insurer shall directly or indirectly invest outside India the funds of the policy-holders,' restrictively.
It has suggested that the section 27 C may be considered "...at the very minimum that insurance companies could invest in OVL bonds to the extent of their share capital and reserves and surplus, as these are funds of the 'shareholders' rather than of the 'policy-holders'."
To prevent any misuse of the permission (investment in foreign securities from shareholder funds), Finance Ministry and IRDA could issue necessary guidelines under the powers vested in them under the Insurance Act, 1938, the letter said.
The letter assumes significance in the back drop of emerging economies, including India and China increasingly trying to invest in Oil and Gas assets all over the world for enhancing energy security.
OVL, which is engaged in Exploration and Production (E&P) operations outside India, has been looking at various means to raise long-term funds from markets, to fund its overseas acquisitions.
In December 2009 OVL had issued five year bonds on private placement basis, guaranteed by ONGC, for an aggregate amount of Rs 1000 crore with an option to retain over-subscription through book-building route.
During the course of issue, OVL was informed by its bond arrangers that insurance companies, which are major investors in the bond market, are inhibited in bidding for the bond offering of OVL on account of Section 27C of the-Insurance Act.
Source: Economic Times