OMCs debt may swell to Rs 70,000cr
New Delhi   31-Mar-2008
<b>Monetising bonds a big struggle </b> A liquidity crunch has gripped public sector oil marketing companies IndianOil, HPCL and BPCL. Borrowings of the Navratnas are likely to be around Rs 70,000 crore in the current fiscal as they find it hard to monetise oil bonds issued by the government against their under-recoveries. While BPCL plans to raise its working capital borrowing limit from Rs 15,000 crore to Rs 20,000 crore, HPCL is expecting a 40% jump in its borrowings for the current fiscal. Market leader IndianOil has projected that its borrowings are expected to increase from Rs 27,000 crore in 2006-07 to Rs 32,000 crore in 2007-08. "Oil bonds are revenue income hence, we are able to report profit. But it does not solve the liquidity problem of the oil companies. Disposal of oil bonds (without statutory liquidity ratio status) is difficult. As a result, our borrowings have jumped. In the case of IndianOil, borrowings in 2003-04 was about Rs 13,000 crore, which is expected to cross Rs 32,000 crore in 2007-08," IndianOil Director (Finance) SV Narasimhan told ET. IndianOil, which has so far accumulated oil bonds worth Rs 34,729 crore (including original pool), could manage to sell bonds worth Rs 13,421 crore offering discounts between 3% and 5%. Faster disposal of oil bonds is also difficult due to current norms, which restrict selling to 25% of accumulated bonds in one quarter. "We need money to run our operations and for future expansion. It is true that our reserves and surplus are likely to touch Rs 40,000 crore in 2007-08 (factoring in dividend of about Rs 2,000 crore), but it is not in liquid form. We need to borrow at an even higher interest rate which has gone up to 8.5% in the last three months (from average borrowing rate of 7.5% to 7.75% earlier)," Mr. Narasimhan said. HPCL Director Finance B Mukherjee agreed that oil bonds are sold at a discount, "HPCL has got low debt-equity ratio and our short term borrowings are compensated by bonds. We are pitching for SLR status for oil bonds so that banks can also buy them," he said. While IndianOil and HPCL claim their financial positions are still manageable, BPCL seems to be desperate. It is considering increasing the working capital borrowing limit from Rs 15,000 crore to Rs 20,000 crore. "It is also considering taking board approval for having separate bank guarantees and letter of credit limit of Rs 5,000 crore," a company source said. The company is facing an acute liquidity crunch. In June 2007, the board of the company had authorised it to borrow up to Rs 15,000 crore to meet its working capital requirement. Explaining the reason, an official said the PSU oil-cos were forced to sell petroleum products (petrol, diesel, PDS kerosene and domestic LPG) below the cost price, resulting in huge under-recoveries. "The government has agreed to share majority of the losses through upstream sharing and oil bonds. However, only upstream sharing has been available in cash form," an official said.