Banks ask firm to avoid new exploration and development in sanctions-hit states.
Foreign banks advising Oil India Ltd on its initial public offering have sought an assurance the explorer will not invest the funds raised in Iran and Sudan, which face U.S. sanctions, oil ministry officials said on Wednesday.
The company aims to open its IPO on November 10 to raise more than 15 billion rupees ($325 million) to fund its expansion, the sources said.
They said Oil India plans to invest 23.4 billion rupees in the next financial year, mostly on exploration and development.
HSBC, Citigroup, Morgan Stanley and JM Financial Ltd are the bankers to the initial public offering.
"The bankers, HSBC, Citi, and Morgan Stanley, with bases in the US have asked Oil India not to invest IPO proceeds in Iran and Sudan," said an oil ministry official with knowledge of the IPO plans, who did not wish to be identified.
State-run Oil India holds a 10 percent interest in a pipeline in Sudan, 20 percent in the offshore Farsi exploration block in Iran, and has stakes in explorations blocks in several countries including Libya, Nigeria and Yemen.
Another ministry official said Oil India was expected to give such an assurance on the IPO funds to attract institutional investors from Western countries.
A third official confirmed the development, saying the bankers sought assurances that Oil India would not use the funds for existing or future participation and investments in countries where sanctions have been put in place by the US Office of Foreign Assets Control (OFAC).
"Bankers know the pulse of overseas institutional investors. They have prepared the list of interested parties and are expected to begin discussion with them from Oct. 13," the third source said.
The move by the banks is a sign that the US-led campaign to isolate Tehran over its nuclear programme is making it more difficult to invest in the Islamic Republic.
Oil India and other Indian firms plan to invest $3 billion to develop gas fields in Iran's Farsi block and are waiting for Tehran's formal approval.
India's state-run Oil and Natural Gas Corp and refiner Indian Oil Corp each hold 40 percent participating interest in the Farsi block that Oil India has an interest in.
The first official said Oil India would still be able to invest in Iran if needed, as it was a debt-free company and could raise loans or fund through internal resources.
Iran is drawing interest from Indian and Chinese firms that are keen to tap the world's second-largest reserves of oil and gas and are less susceptible than many other companies to Western pressure over Tehran's nuclear programme. (Reuters)