Oil companies expect to get special oil bonds

State-run oil marketing companies are likely to get 7% Oil Companies Government of India Special 2012 bonds this week, a top official at Bharat Petroleum Corp. Ltd. said Monday.

The government had issued these bonds, worth 57.63 billion rupees, Friday towards outstanding claims of oil companies against the Oil Pool Account.

"The bonds have been issued and we expect they will reach us sometime this week," said Ashok Sinha, chairman and managing director, BPCL. "Whether we sell the bonds immediately or hold them, would depend on the market conditions."

Once the oil companies get the bonds from the government, they can offload them in the debt market and raise money. Oil bonds are a popular investment option among banks and mutual funds due to their quasi-sovereign nature.

Market players said they expected oil companies to almost immediately offload these bonds in the market given that they were cash-strapped due to huge revenue loss on selling oil products below import parity cost.

"Oil companies are expected to sell these bonds to banks and mutual funds as soon as they get them from the government," said a fund manager with a foreign mutual fund.

The bonds are the last tranche government owed to oil companies from the Oil Pool Account that was discontinued along with administered pricing mechanism in April 2002.

As per the estimate made in 2001-02, the government owes state-run oil companies over 140 billion rupees from the Oil Pool Account.

The government had issued oil bonds worth around 90 billion rupees in 2002 while the balance had not been paid.

While Indian Oil Corp. Ltd. owns around 24 billion rupees in the last tranche, other state-run companies-Bharat Petroleum Corp. Ltd., Hindustan Petroleum Corp. Ltd., and IPB Co. Ltd.-will also get a share in the last tranche of oil bonds. BPCL's share is pegged at 11 billion rupees.