Reliance Petroleum Ltd (RPL) has approached a consortium of banks led by State Bank of India for a Rs 4,405 crore loan to meet its working capital requirements for a two-year period.
Of this, Rs 1,885 crore will be utilised in the current fiscal and the remaining Rs 2,520 crore in the next fiscal.
The company has also asked the consortium to split the working capital fund facilities into two components _ a 20 per cent cash-credit component and an 80 per cent loan component. Therefore, of the Rs 1,885 crore working capital requirement for fiscal 1999-2000, Rs 377 crore will be the cash-credit and Rs 1,508 crore the loan.
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In its proposal, RPL said the company has worked out its eligibility for working capital under the Second Method of Lending, ensuring the minimum current ratio at 1.33 times.
When contacted, a Reliance spokesman said, "It is the company's policy not to comment on any financial transactions."
According to the company's projections, its assets are worth Rs 4,850 crore and current liabilities (excluding bank borrowings and instalments of term loans) at Rs 1,753 crore in the current fiscal, resulting in a working capital gap of Rs 3,097 crore.
RPL's 27 million metric tonnes per annum (mmtpa) refinery project announced the launch of its crude distillation unit at the company's Jamnagar plant on Wednesday. This marks the beginning of the phase-wise commissioning of the project. When fully-commissioned, RPL will have the highest refining capacity in the country, followed by Indian Oil Corporation (IOC) which, at present, has a refining capacity of 25.70 mmtpa. IOC is in the process of adding another 10.40 mmtpa of refining capacity _ 4.40 mmtpa through expansion at its existing refineries and six mmtpa through new projects.
According to the company's projections on production, high speed diesel will account for about 13 million tonne of its 27 million tonne production capacity, followed by light distillates such as LPG, naphtha, propylene, gasoline and reformate (the combined production of which will be about nine million tonne). Production of heavy-end products such as sulphur and coke will be about 2.5 million tonne. was introduced in this budget, it distorts the growth figures of 21 per cent over the same period last year.
A "Kargil tax" that the government is mulling, therefore, could well provide a cushion. In doing this, Sinha is following a precedent set during his earlier stint as finance minister when he imposed a mid-year tax and selective excise and customs hikes during the Gulf War.
Significantly, the government plans to write to the 11th finance commission to provide relief to the Centre for this unplanned expenditure. The Kargil tax is in the form of a cess, which means it will not be shared with the states. Senior officials in the Prime Minister's Office (PMO) say the government is expected to impress on the finance commission that the Kargil conflict will force radical change in the nature and amount of future defence spending. Officials explained that, henceforth, these and other sensitive borders will have to be manned round the year like Siachen. "This will alter assessments in the three-year defence restructuring plan because such strategic issues were not factored in before," the PMO official says.
Predicts Mahesh Vyas, executive director of the Centre for Monitoring Indian Economy, "The fiscal deficit is bound to increase because of the war. It has not only already inflicted the damage but has left wounds we will have to nurse in the future."
So should India be bracing itself as the government slips back into bad old borrowing habits? "I am quite confident that the costs of the Kargil conflict will be within manageable limits as far as the government's budget is concerned (but) as far as the Indian economy is concerned the impact could be in terms of interest rates going up... prices going up (or) lesser availability of investible resources for the private sector," Sinha told Star TV on Friday night.
Sinha's fears will probably surface in January next year. Till October, however, an internal projection done a week ago pegs the consumer price index at 3 per cent by end-October _ down from the current 7.7 per cent. Inflation based on the wholesale price index is already at a record low of 2 per cent; it's expected to rise marginally.
But as the stock markets have shown, few wars have been waged in such fortuitous circumstances. Surprisingly, money market dealers in Mumbai differ in their assessment of interest rate movement. They're now talking about lower interest rates. "Inflation is already very low, so interest rates too have to come down. There is sufficient liquidity in the system to absorb any higher borrowing," says V H Ramakrishnan of the Bank of India.
Dealers say they expect the Reserve Bank to announce some small cuts in the bank rate (the refinance rate that, in India, acts as a reference rate) which is currently at 8 per cent.
This unexpectedly happy outlook on interest rates is pegged on two calculations. First, the government would have factored in cost overruns. "If there is a spillage on costs, how does it matter whether the government has blown it on wage revisions or on the war," reasoned a money market dealer.
Second, the money market is betting on the advantages of a temporary government. A dealer makes the point that the government has far less authority to spend, so expenditure will stay within tolerance levels.
The lack of worry is also fuelled by the fact that tax collections ended a three-year drought. "Tax collections have been up by 20 per cent between April and June, which implies better revenue for the government," said S R Kamath, deputy general manager at the Securities Trading Corporation of India.
Nothing indicates the singular lack of gloom better than the Rs 2,978 crore foreign institutional investors poured into the markets between May 10 and July 15.
When hostilities broke out, fund managers were wary. These days, it's hard to find a major stock that doesn't have a "buy" sticker. Shitin Desai, vice chairman and managing director, DSP Merrill Lynch, predicts the sensex will breach the 5,000-mark by 2000.
Of course, the sustained cheer in the Indian markets is as much a factor of causes other than Kargil. Says Gul Tekchandani, chief investment officer, Sun F&C, "We are bullish on the Indian market over the medium term. All factors are in favour of a bull run. The Asian markets have stabilised, the Dow Jones is firm, Indian mar-kets are cheap compared with south-east Asia, while our economy is showing signs of a revival," he says.
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