IndianOil braces for asset mortgage
New Delhi   22-May-2008
<b>Seeks shareholders' nod, needs loans to fight rising cost of crude</b> IndianOil Corporation has sought shareholders' permission to mortgage its assets, if needed, for raising loans to keep the company going. The only Indian entry in the Fortune 500 list till a few years back, had stood guarantee for multilateral loans the Centre took to overcome the 1991 liquidity crisis. Today, however, it is left with just two days credit and has little cash in the kitty because the government has not allowed it to raise fuel prices in tune with rising crude costs. "Pursuant to the provisions of Section 293tt)(d) of the Companies Act, 1956, IndianOil (the company) proposes to increase its borrowing limit up to Rs 80,000 crore for both domestic and foreign borrowings in order to meet its working capital requirement and capital expenditure programme. Further, it is also proposed to authorise the Board to create charge and/or mortgage the moveable/immoveable properties of the 'company for the borrowing in accordance with Section 293(lXa) of the Companies Act, 1956," says the postal ballots the company sent to its share- holders on May 12. It is an enabling provision. Sometimes, lenders such as the OIDB (Oil Industry Development Board) seek security for loans. The permission ensures the management is ready should a lender ask for such a thing, a top company executive told TOI on Wednesday. Normally, such issues are settled at the AGM. "Our AGM is scheduled in September but we cannot wait that long. That's why we have opted for postal ballot," he added. The desperation is understandable. IndianOil is losing Rs 270 crore daily on motor and kitchen fuel sales. It's losing Rs 16.34 a litre on petrol, Rs 23.50 on diesel, Rs 29 on kerosene and Rs 316 on each cylinder of cooking gas. Present pump prices correspond to approximately $70-75/barrel of crude, which is being bought at $123-125. The government had allowed IndianOil and its two sister concerns BPCL and HPCL to raise petrol prices by Rs 2 a litre and diesel by Re 1 in February By then, however, international crude had moved to the $90-100/barrel region. As for cooking gas, the price was last raised by Rs 20 twice in 2004 On June 5 and November 5 when international price of LPG stood at $368.57 a tonne when the companies were buying crude at $39.21/barrel. This January, the price stood at $873 a tonne, with crude purchases averaging $103.26/barrel. The finance ministry has accepted that the three state-run oil marketing firms suffered a loss of Rs 70,579 crore in 2007-08 and said it will give bonds Canter’s IoUs — to cover half of it. Oil producers such as ONGC and Oil India Ltd will make good 24% of these losses, while consumers and the retailers share the remaining burden by way of higher prices and losses, respectively. But the bonds don't help either as for every piece of its IoUs promising Rs 100, the government takes back Rs 51 hi cash from the oil marketing companies by way of corporate tax, dividend and tax on dividend. No wonder, the three oil marketing firms are looking at a Rs 200,000 crore combined losses at present values this fiscal if things continue. With their backs to the wall, IndianOil and its sister firms started clipping sales of non-branded fuels in Metros and 16 other cities and stopped giving new cooking gas connections — both of which were first reported by TOI on May 17 edition—with the aim of cutting losses. Branded fuels are costlier than normal fuels and have pre-mixed additives, which the companies claim, yielded higher mileage as they help car engines perform better and lower emmissions. In Delhi, normal diesel costs Rs 31.76 a litre, while branded ones cost Rs 33.01. Similarly, branded petrol. Costs Rs 48.52 a litre against Rs 45.52 a litre of the non-branded fuel.