The government on Monday issued Rs 22,000 crore worth of oil bonds to the three oil marketing companies to partly compensate them for selling fuels at below production costs.
The oil bonds will have a coupon rate of 8.20 per cent and be eligible for redemption in 2013. The bonds however do not have the status of statutory liquidity ratio which means banks will be less attracted to buy these bonds.
As per Reserve Bank of India norms commercial banks have to deposit 24 per cent of their net domestic time and demand deposits in the approved government securities. However, these bonds is eligible for repo transactions.
Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation will now be able to offload these oil bonds to the Reserve Bank of India which will in return give these companies an equivalent number of dollars. The oil companies require dollars to buy crude oil for their refineries. They spend close to $6 billion every month for buying crude oil.
Of the total bonds, IndianOil will get Rs 11,975.51 crore, Hindustan Petroleum Rs 5,330.76 crore and Bharat Petroleum Rs 4,693.73 crore.
Parliament had in October cleared oil bonds worth nearly Rs 66,000 crore. The remaining Rs 44,000 crore worth of bonds will be issued later.
The oil companies sell fuels at below production costs for which they are partially compensated by the government in the form of oil bonds. The government issued oil bonds worth around Rs 34,000 crore in 2007-08. In this financial year over Rs 70,000 crore worth of oil bonds are likely to be issued.
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The finance ministry on Monday announced the sale of Rs 10,000 crore of government bonds in two auctions which will take place on November 14. One auction will be for Rs 6,000 crore worth of securities which have a coupon rate of 7.56 per cent with redemption in 2014. The other auction will be Rs 4,000 crore worth of bonds which carry a coupon rate of 7.95 per cent with expiry in 2032.
Up to 5 per cent of total amount of the sale of both the batch of bonds will be allotted to eligible individuals and institutions, said a press statement from the finance ministry.
The government also said it would repurchase Rs 10,000 crore worth of bonds again in two auctions on November 12. The first re-purchase will be for Rs 5,000 crore worth of bonds with coupon rate of 6.65 per cent which mature in 2009, while the other buy back auction will be for another Rs 5,000 crore worth of securities with coupon rate of 5.87 per cent with maturity in 2010.