Oil firms may sell bonds to tide over crisis

To raise funds to meet working capital needs.

Oil refining and marketing companies are planning to hawk special bonds to raise funds to tide over the severe financial strain they are facing on account of spiralling crude oil prices.

With crude oil crossing $52 a barrel and showing no signs of falling, oil companies are seriously thinking of ways to avoid a financial crunch, till such time as the government allows them to raise product prices.

The oil companies were issued 6.96 per cent Government of India Special Bonds 2009 in late March 2002 in settlement of their outstanding receivables from the Oil Co-ordination Committee under the administered pricing mechanism. The government issued over Rs 9,000 crore of bonds to oil companies.

While Indian Oil Corporation (IOC) has already offloaded its entire portfolio of oil bonds worth Rs 5,276 crore to the State Bank of India, Hindustan Petroleum Corporation Ltd (HPCL) holds Rs 1,000 crore of bonds while Bharat Petroleum Corporation Ltd (BPCL) has oil bonds worth Rs 500 crore.

In 2002, IOC was issued bonds worth Rs 5,276 crore, HPCL Rs 1,481 crore, BPCL Rs 1,018 crore, ONGC Rs 961 crore, Oil India Ltd Rs 107 crore, Bongaigaon Refinery and Petrochemicals Rs 56 crore, Numaligarh Refinery Rs 46 crore, Kochi Refinery Rs 37 crore, Chennai Petroleum Corporation Rs 12 crore and Gail Rs 6 crore.

The oil companies are strapped for crash and are now looking at offloading these special oil bonds to retail and institutional investors to raise funds to meet their working capital requirements.

"We are looking at the option of raising funds by offloading oil bonds. The amount raised through the sale of the bonds is expected to partly tide over the cash-flow problems," executives with oil companies told Business Standard.

But the executives added that the amounts so raised could help them only for a few days, at most. In fact, IOC and BPCL have already raised their borrowing limits in order to be able to borrow more from the banking system to meet their cash requirements.

The oil companies say they have financial problems as a result of the government not allowing them to raise prices of transportation fuels as well as of liquefied petroleum gas and kerosene at the retail level.

Sources say the sale of oil bonds is a one-time sale and not a sustainable solution to meet cash flow needs. "The real problem is that the government, which is expected to share the subsidy burden, has not disbursed the money in time," they claim.

Petroleum and Natural Gas Minister Mani Shankar Aiyar recently pointed out that the burden on high crude prices would have to be shared equally by the government, oil companies and consumers.

On its part, the government has reduced taxes on crude, but the oil companies are not allowed to increase the price of fuels at the retail level in line with global prices.

Bond aid
TAPPING HOARD In 2002, the government issued Rs 9,000 crore of bonds to oil companies as settlement of their outstanding receivables under the APM

CASHING IN Oil giants now want to hawk these special oil bonds to retail and institutional investors to meet their working capital requirements

STOP-GAP Oil company officials say the amounts so raised could help them only for a few days, at most