Securitisation Deals Pull Oil Firms Out Of Woods

Securitisation transactions worth Rs 2,300 crore bailed out the country's oil and gas companies from the severe cash crunch they faced last fiscal.

Securitisation of oil and gas receivables, it is widely believed, consists of government bonds issued to oil majors in lieu of cash (the subsidy component).

According to industry sources, most oil companies faced a cash flow problem last year when crude prices were ruling high in the international markets and the oil pool deficit was ballooning.

While imported crude has to be paid for upfront, cash from the domestic sales, either to the marketing companies or to the government, comes in only after a lag. Hence the huge amount involved.

 

The sheer size of the receivables securitised means they were parked mainly with banks and financial institutions. For them, the risk is also minimal given that oil bonds are almost equal to sovereign paper.

According to another source, with world crude prices falling, the stress on the cash flow of oil PSUs is easing, and this year the figure will not add up to as much as in 1997-98.

Securitisation of dealer receivables by the oil marketing companies is normally done as normal working capital requirements.

Securitisation of oil and gas receivables has been mainly responsible for the massive surge in the business. For Crisil alone, rated securitisation transactions went up from Rs 143 crore in 1996-97 to Rs 2,902 crore in 1997-98.

The asset portfolio of securitisation transactions has also expanded to include not just car and commercial vehicles hire purchase receivables but property receivables and even school receivables.

Securitisation has taken off in a big way as an alternate funding source as cash strapped companies trade assets to improve cash flows.

Non-bank finance companies have been large players because of the recently introduced RBI norms that link deposits to credit rating. Forced to refund deposits, securitisation is seen as an important way of encashing assets. Reducing tenor mismatches and profit booking are other important motivating factors.

Future flow securitisation is also becoming increasingly popular. So far, Crisil has rated escrow of electrical utility receivables, octroi, property tax and government grants and toll receivables.

Beneficiaries of these deals are municipal and city corporations who have been forced to look for alternate funding means given that support from state governments are fast declining.