Chennai Petroleum, Aban Offshore hope to gain with sanctions lifting against Iran

Chennai Petro to gain on reinsurance, have access to American banks; Aban will be able to deploy rigs profitably

The lifting of sanctions against Iran would help two Chennai-based companies -- Chennai Petroleum Corporation Ltd (CPCL) and Aban Offshore. Both firms were facing the heat due to the sanction against that country. The companies were paying higher insurance premium and were charged higher interest for capital.

The United Nations nuclear watchdog on Saturday said Tehran had met its commitments to curtail its nuclear programme, and the United States immediately revoked sanctions.

While CPCL refused to comment on the development, industry sources and people who track the company said lifting the sanction against Iran will help CPCL, an Indian Oil Corporation's subsidiary, in a big way when it comes to reinsurance and it will also now get access to American banks.

CPCL has been paying higher premium for the insurance as Multinational Companies (MNCs) were not coming forward to give reinsurance as CPCL's one of the shareholders is an Iranian company.

The presence of an Naftiran Intertrade's (Swiss subsidiary of National Iranian Oil Company) has been a challenge in the wake of US sanctions against the West Asian country. The Iranian shareholder has around 15.40 per cent stake in CPCL.

The standalone refinery could not be merged with IOC since the Iranian partner is not interested in exiting and CPCL could not raise capital from the parent due to the Iranian partner.

IOC alone can't infuse money; if CPCL issues rights shares, it will also increase the Iranian partner's stake. Direct capital infusion could not be possible, because of the US sanction on Iran.

CPCL share was down by 6.60 per cent to Rs 181.75 a share on Tuesday.

Similarly, the other firm which is expected gain due to the development would be Aban Offshore, which provides drilling and support services for offshore oil exploration and production. Earlier the company said if the lifting of sanctions on Iran, the largest market for jack-up rigs, will make it possible for the company to deploy rigs profitably as well as optimising the insurance premia.

Around 35 per cent of the company's revenue comes from the five rigs deployed in Iran. The suspension of the sanction would help the company to improve its working capital situation.

The insurance cost, which is around nine per cent of the operating expense would reduce, which would help the company to increase its profit. The removal of sanction is also expected to increase the demand of jack-up rigs globally, said an analyst earlier.

Company officials could not be reached for comment immediately.

Aban Offshore stock price was down 2.31 per cent in BSE at Rs 190.50 a share on Tuesday.