Yes, Axis Bank securitise Rs 1k cr oil company loans

At a time when public sector oil marketing companies are facing a liquidity crunch, two private banks "" Axis Bank and Yes Bank "" are securitising loans worth over Rs 1,000 crore that were extended to Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL).

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Axis Bank is securitising loans worth Rs 655 crore extended to HPCL, while Yes Bank has securitised loans amounting to Rs 421 crore given to BPCL

Securitisation involves pooling and repackaging of cash-flow producing financial assets into securities that are subsequently sold to the investors

Axis Bank is securitising loans worth Rs 655 crore extended to HPCL, while Yes Bank has securitised loans amounting to Rs 421 crore given to BPCL.

Securitisation involves pooling and repackaging of cash-flow producing financial assets into securities that are subsequently sold to the investors. For example, car, home and term loans extended to companies are pooled with the repayment stream or cash flow and then offered to investors.

Market players said the securitisation was aimed at complying with the exposure limit set by the regulator.

Moreover, it was meant to maintain an asset-liability match, an executive at one of the banks securitising the loans said.

With oil marketing companies (OMCs), Indian Oil Corporation, HPCL and BPCL facing a liquidity crunch last week, the Reserve Bank of India gave additional lending space to banks by raising the single borrower exposure limit from 15 per cent to 25 per cent.

In exceptional cases, the cap can go up to 30 per cent. The regulator has also opened special windows for OMCs to sell the oil bonds and purchase foreign exchange.

With oil prices touching $135 last month, Indian companies have to pay much higher amounts to purchase dollars. At the same time, they are under pressure due to rising under-recoveries on the sale of petrol, diesel, cooking gas and kerosene.

The government is unlikely to raise the cooking fuel prices. It may, however, allow the OMCs to hike auto fuel prices later this week. But the move will only cover a part of the losses being incurred.

Crisil assigned 'P1+(SO)' rating to these securitised loans, which indicates a high degree of safety on timely payment. Based on the rating, the banks will issue pass through certificates (PTCs).

A senior executive at a private bank active in the securitisation market, said, "These loans are extended while taking into account the financial strength of oil companies. There is no implicit or explicit assurance from the government on the financial support to oil for repayment obligation".

The net profit of Hindustan Petroleum declined 30 per cent to Rs 384.51 crore during the quarter ended March 2008 as against Rs 549.54 crore during the corresponding period in 2006-07. IndianOil reported a loss of over Rs 400 crore in the fourth quarter.