IOC raises Rs 1,500 cr via bond sale

Indian Oil Corporation (IOC), which recently hit the corporate bond market after a gap of three years, has raised Rs 1,500 crore from the issue, five times more than its initial plan.

India’s largest crude oil refiner will use the proceeds for setting up new production assets, estimated at Rs 55,000 crore over the next four years. Its various projects include expansion and upgrade of refineries and greenfield petrochemical units.

“We could have raised more than Rs 1,500 crore, but had taken a rating of up to that amount. The response to the issue has been encouraging,” said IOC Finance Director SV Narasimhan. “The bonds were primarily bought by mutual funds and provident funds,” he added, without disclosing the names of the buyers.

IOC had hoped to raise a minimum of Rs 300 crore from the bonds issue. It however had an option to raise more if there was demand for the bonds.

The company might consider more such bond issues if the need arises. The company, which already has borrowings of around Rs 45,000 crore, is adding debt to run day-to-day operations apart from funding projects. The company is not making any money from retail sale of petrol, diesel, kerosene and cooking gas – which make up around 70 per cent of its total sales – at below production cost contributing Rs 213 crore of loss every day. Its borrowings are expected to go up to Rs 58,000 crore by the end of October, the company’s CMD, Sarthak Behuria, said recently.

The bonds are being issued in two batches – one with an interest rate of 11 per cent for 10 years and the other at 11.15 per cent for three years. Rating agency Icra has assigned AA+ rating for the programme, while Fitch has assigned AAA for the long-term debt of the company for a sum of Rs 1,500 crore.

ICICI Securities Primary Dealership, Axis Bank, StanChart, Citibank and A K Capital are arrangers to the issue.

IOC officials were skeptical about the response to the bonds as the company’s borrowings are already huge and its financials are under pressure as it sells petroleum products below production costs. It is losing over Rs 200 crore from its retail fuel sales.

Analysts however say that the company has the ability to redeem the bonds on maturity. “It is a big company, and there is no doubt it can repay the bonds,” said Vinay Nair, research analyst at Mumbai-based Khandwala Securities.