Oil firms may unload bonds at a discount

Rising interest rates and consequently lack of appetite for debt paper will force state-owned oil refining and marketing giants to offload their balance oil bonds at a discount to the issue price.

Oil companies faced with a severe financial crunch in the wake of oil prices shooting above $52 a barrel, propose to offload their balance holding of oil bonds even if it means offloading at a discount.

Hindustan Petroleum Corporation Ltd (HPCL) holds Rs 1,000 crore of bonds while Bharat Petroleum Corporation (BPCL) has oil bonds worth Rs 500 crore.

The 6.96 per cent special oil bonds are currently trading at Rs 101.5, against their issue price of Rs 100. However, a year back when oil companies started offloading their oil bonds, many like BPCL and HPCL were able to garner a premium as yields in government securities had fallen sharply, making investment in oil bonds attractive.

Today with the yield on the benchmark 10-year paper quoting at about 6.5 per cent, and banks shifting their focus to meeting corporate credit demand, there is little appetite for oil bonds, said market dealers. Corresponding 5-year government paper is ruling at 6.4 per cent, against the 6.96 per cent yield on the oil bonds.

Oil companies admit that the price at which they will be forced to offload the bonds "will not be as attractive as was the case last year".

HPCL got a hefty premium in excess of Rs 2 when it liquidated the second tranche of its oil bonds amounting to Rs 150 crore in November last year. At that time the 7-year Oil Companies' Government of India Special Bonds 2009 were trading in the market at Rs 102.30. Today these bonds are hardly traded. The last trade took place on Tuesday at Rs 101.5.

The oil companies were issued Rs 9,000-crore worth of 6.96 per cent Government of India Special Bonds 2009 in late March 2002 in settlement of the oil companies' outstanding receivables from the Oil Co-ordination Committee (OCC) under the administered pricing mechanism.

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 Rs 107 crore, Bongaigaon Refinery Rs 56 crore each, Numaligarh Refinery Rs 46 crore, Kochi Refineries Rs 37 crore, Chennai Petroleum Corporation Rs 12 crore and GAIL Rs 6 crore.