Bharat Petro, Ioc Strike Oil Bond Deals

Bharat Petroleum Corporation Ltd (BPCL) has concluded the sale of the first tranche of its holding of the 6.96 per cent 7-year special oil bonds with Citibank.

BPCL, the first among oil majors to sell part of the bonds, sold Rs 100 crore bonds to Citibank and another Rs 35 crore to a private bank, out of its total bonds worth Rs 1,018 crore, at a premium of around Rs 100.10. The bonds have a face value of Rs 100.

The softening rates helped BPCL sell the bonds at a premium, contrary to market perception that oil firms will have to take a hit on the pricing.

 

The Oil Companies Government of India Special Bonds, 2009, totalling Rs 9,000 crore, were allotted to oil companies by the government in settlement of their dues during the administered pricing mechanism (APM) regime.

Many banks have been actively soliciting this business and Citibank is the first off the block to provide liquidity to oil PSUs holding these bonds, Siva Shankar, head of debt capital markets at Citibank, said.

Shankar said the bonds are attractive as they offer a yield of 33 basis points above the government securities of the same maturity, and that it would be easy to sell these bonds in the secondary market. Seven-year gilt is quoting at 6.63 per cent against the coupon rate of 6.96 per cent for the oil bonds. As the oil bonds issued by the government do not qualify for statutory liquidity ratio (SLR), they trade at a discount to a government security of comparable tenor.

P Balasubramanian, deputy general manager, BPCL, said with interest rates falling for sometime now, we found the current price level attractive to begin our exercise of liquidating these bonds.

"We are not interested in retaining these bonds as we are in the business of oil and not investment," added a senior BPCL official.

Banks on the other hand, have taken interest in these bonds as there is clearly a softening in interest rates and the general perception is that rates could fall further after the credit policy announcement. This has made the oil bonds attractive.

Oil companies have to fund these bonds through borrowings, which adds leverage to the oil companies. As such, they have been waiting for an opportunity to get the best realisation, Shankar said.

IOC is keen to liquidate bonds worth Rs 5,276 crore. Other oil companies such as Hindustan Petroleum Corporation hold bonds worth Rs 1,481 crore, Oil and Natural Gas Corporation (Rs 961 crore), Oil India (Rs 107 crore), Bongaigaon Refinery and Petrochemicals (Rs 56 crore), Numaligarh Refinery (Rs 46 crore), Kochi Refinery (Rs 37 crore), Chennai Petroleum Corporation (Rs 12 crore) and GAIL India (Rs 6 crore).

PTI adds: State-run Indian Oil Corporation (IOC) has struck a deal with State Bank of India (SBI) for monetising its Rs 5276 crore oil bonds in two tranches.

As per the deal, IOC would receive the first tranche of Rs 3,000 crore by the month end and the remaining Rs 2,000 crore by November-end, industry sources said here.

The deal, which is believed to have been concluded at 0.34 per cent discount, has been staggered to avoid an oversupply shock in the market.

Meanwhile, Hindustan Petroleum Corporation Ltd (HPCL) too has monetised oil bonds worth less than Rs 100 crore this month.

IOC would use receipts from the bonds to partly repay its Rs 17,000 crore debt to bring down the debt-equity ratio from the current 1.19:1 to 0.9:1 by the month end and further to 0.8:1 by November-end, sources said.

IOC, BPCL and HPCL were in April issued the 7-year market tradable bonds, carrying an interest rate of 6.96 per cent, in lieu of their outstanding with oil pool account.

Since these bonds are fully tradable and do not have the call option (a mechanism that allows the government to get them back on redemption), the bank may trade them in the secondary market, they said.

IOC was issued bonds worth Rs 5,276 crore, while HPCL was issued Rs 1,481 crore worth of oil bonds. BPCL got bonds worth Rs 1,018 crore.