Indian Oil Corporation (IOC), the country's largest marketer of petroleum products, is planning to double its borrowing limit to Rs 80,000 crore from Rs 40,000 crore. The company's borrowings stand at Rs 37,000 crore.
"We have sent out notes to shareholders for increasing the borrowing limit. The shareholder meeting will be held some time in the end of September," said a senior IOC official. The annual general meeting of shareholders will be through the postal route.
Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) are also planning to increase their borrowing limits but have not yet decided by how much. HPCL's current borrowings are Rs 22,000 crore while the figure for BPCL is Rs 16,000 crore.
"Our borrowings are increasing and we are planning to increase the limit," said B Mukherjee, finance director, HPCL.
High crude oil and petroleum product prices in the international market and the cap on domestic retail prices of petrol, diesel, LPG and kerosene are resulting in IOC, BPCL and HPCL incurring revenue losses of around Rs 550 crore per day. This has put a strain on liquidity.
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IOC borrowed over Rs 35,000 crore in 2007-08, up 29.6 per cent from the Rs 27,000 crore it borrowed in 2006-07. So far this financial year, it has already borrowed over Rs 2,000 crore. Also, the oil bonds the government gives these companies to partly offset the revenue losses are usually sold at a discount due to lack of many many buyers.
"There are too many oil bonds in the market which has resulted in their prices coming down," said a Delhi-based analyst.
IOC is likely to incur a revenue loss of Rs 10,000 crore in 2007-08 despite getting bonds from the government and discounts from upstream oil companies. In 2006-07, it faced a loss of Rs 2,190 crore.
The company plans to spend Rs 10,500 crore on various projects in 2008-09. It has planned capital expenditure of Rs 50,994 crore during the Eleventh Plan (2007-12).
"The increased borrowings will also help us fund our capital expenditure plans," said the IOC official. The company's chairman, Sarthak Behuria, had earlier said that the rising borrowings would result in banks not offering best interest rates. IOC's average cost of borrowing is 7 per cent, up one percentage point from a year ago.
He had also said the rising revenue losses would soon adversely impact the company's project financing.