IndianOil in bond mkt after 6 yrs, to rise up to Rs 1,500 crore
New Delhi   28-Aug-2008
After a gap of six years, IndianOil has tapped the bond market to raise term money at a fixed rate of 11% for 10 years and 11.15% for three years. Sources said IndianOil had last raised money from the bond market in 2002. The issue size is Rs 300 crore but the company can accept higher subscriptions under the greenshoe option. Rating agency ICRA has issued an AA+ rating while Fitch has assigned AAA to long-term debt of the company for Rs 1,500 crore. This indicates that Indian can rise at least up to Rs 1,500 crore through the current issue. The issue will be open for subscription on August 28 and close on September 5. IndianOil is the largest refining and marketing company that controls Lo out of India's operational refineries. Its refineries have a capacity of 60.2 mtpa against a total of 148.9 mtpa in India. Sources said insurance firms and provident funds are likely to invest in the bonds. ICICI Securities Primary Dealership, Axis Bank, StanChart, Citibank and AK Capital are arrangers to the issue. Recently, Power Finance Corporation concluded a three-year bond issue, where it raised Rs 300 crore at 10.85%. IndianOil suffers a loss of Rs 240 crore every day by selling its products at a subsidised rate. However, the government through issuance of oil bonds recompenses this. While issuing its rating, Fitch had indicated that without any well-defined mechanism for the timely issue and liquidation of oil bonds, if IndianOil's net under-recoveries (the difference between the actual cost of crude products and the price at which they sell it) continue at anticipated levels, the company's ratings, including the Rs 1,500-crore long-term debt programme, would be downgraded. But any significant reduction in the quantum of net under-recoveries as well as the institution of a mechanism for providing timely support could result in the outlooks being revised back to stable from negative. Over the last three years, the share of short-term debt has touched 60% of the total debt due to 'lack of timeliness of oil bond issuance and liquidation'. Moreover, IndianOil has several planned capital projects between fiscal year 2009 and fiscal year 2012 (about Rs 44,500 crore), which will require increased borrowings. Debt will rise even further if under-recoveries continue at current levels.