OMCs turn to CPs, debentures as credit needs rise

Oil marketing companies (OMCs) are increasingly going in for debentures and commercial papers for meeting their short-term credit requirements. The largest petroleum marketer, Indian Oil Corporation, has raised around Rs 5,000 crore and Hindustan Petroleum Corporation has raised Rs 2,000 crore through sale of commercial papers (CPs) over the past two months. Bharat Petroleum Corporation recently raised Rs 1,000 crore through debentures.

The short-term borrowing requirement of OMCs has increased due to the spurt in international oil prices. The average Indian basket has risen to $76 a barrel from $59 a barrel in April-June. The OMCs borrow short-term to purchase crude oil from the international market. For IOC, the working capital requirement has gone up from Rs 45,000 crore in March to Rs 48,000 crore at present.

Debentures and CPs are cheaper compared to loans from banks. Funds can be raised at rates as low as 3.5 per cent for three months, 4.6 per cent for six months and 5.6-5.75 per cent for a year through this route. “The oil marketing companies expect to get loans at rates around 4 per cent, which is not a profitable proposition for us. Our cost of funds are above 6 per cent and we cannot extend credit on terms which would only bring loss to us,” said an executive with Bank of Baroda. An executive with Bank of India confirmed this.

IOC has still managed to raise debt from banks in the range of 5-6 per cent. “We are raising funds through all means, not only for short-term but for long term as well. We do not want to saddle ourselves with repayment in a month, so we are raising funds in a phased manner,” said S V Narasimhan, Director, Finance.

Narasimhan added that the borrowings have also gone up due to increased spending on various projects and non-issuance of oil bonds from the government. Bonds are issued to make up for the losses incurred by the companies on sale of cooking and auto fuels at the government-controlled prices.

Borrowing for state-run BPCL has also gone up to around Rs 22,000 crore against Rs 18,000 crore in September. With banks lending at a higher rate, it is also looking at sources other than banks to raise funds.“We raised Rs 1,000 crore through debentures recently,” said a senior BPCL executive.