Raise Debt, Well Bear Interest, Says Ioc
Indebted by Rs 1000 cr, refiner offers solution to illiquidity at ONGC
Indian Oil Corpo-ration, (IOC) has suggested a new route to help Oil and Natural Gas Corporation (ONGC) tide over its fund crunch. IOC owes ONGC Rs 1,000 crore for crude oil purchased in fiscal 1997.
The country's largest refiner has asked ONGC to raise debt from the market to cover the shortfall till its cash flows improve enough to repay the amount.
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As ONGC will be borrowing at market rates of 16-17 per cent, IOC, when it repays its dues, will pay 17 per cent on the funds thus raised by ONGC and not 12 per cent, which is the normal rate of interest. On the remaining funds, IOC will pay 12 per cent.
For example, if ONGC raises Rs 500 crore at 17 per cent, IOC owes dues of Rs 1,000 crore, IOC will divide its repayment in two parts.
It will return Rs 500 crore with 17 per cent interest and the remaining Rs 500 crore will be returned at 12 per cent.
Top ONGC sources said the IOC suggestion is being discussed by the company and it will decide soon.
The arrangement is likely to benefit ONGC, which will need money for big projects from beginning of fiscal 1998.
"We have enough to last us till April. After that we will need money from the market, where we would have gone, even if IOC had not told us," ONGC sources explain. ONGC executives are holding talks with several leading bankers to determine the size, rate of its borrowings.
ONGC, as the country's largest crude producer sells all its crude at half international rates to IOC, the country's only crude purchaser. IOC pays for the crude out of its own pocket and gets reimbursed by the government's oil pool deficit.
That reimbursement has been delayed forcing IOC to borrow heavily to finance import crude imports at over $20 per barrel.
By end of March, IOC will cross its ECB limit of $2.9 billion and can no longer borrow from the market.
IOC's reasoning is that since ONGC is better placed to borrow, it should do so for its needs. IOC, when its gets its dues from the government after the hike in petro prices, will repay its dues at two rates of interest.
IOC currently owes ONGC nearly Rs 1,000 crore, which is likely to rise to Rs 1,300 crore after March. From next fiscal year, ONGC will need huge amounts of money to finance its exploration activities. It has chalked out a Rs 6,500 crore exploration programme for the ninth plan.
It is also working on a Rs 2,750 crore paraxylene, orthoxylene and benzene plant at Hazira and a kerosene recovery plant at the same site.As ONGC will be
borrowing at market rates of 16-17%, IOC, when it repays dues, will cough up the interest.