RIL, IOC HPCL & BPCL Raise Rs. 78,000 cr via CPs
Economic Times, Delhi 09-Apr-2020
Oil majors Reliance Industries, IndianOil, HPCL and BPCL are on a debt-raising spree and have raised Rs 78,000 crore in short-term debt using commercial papers (CPs) in nine weeks to pay for costly crude purchased before oil prices crashed, while sales revenue has fallen drastically during the lockdown.
State-owned firms are severely hit as they are bearing the additional burden of welfare schemes of the government and have not yet been reimbursed for subsidies on kerosene and cooking gas.
The four firms sold commercial papers (CPs) worth around Rs 78,045 crore between February and now, which is about 32% higher than the sum raised in the corresponding period last year, data compiled by financial services company JM Financial show.
Indian Oil raised the highest sum of Rs 35,395 crore followed by Reliance Industries' Rs 28,000 crore. BPCL and HPCL sold CPs worth Rs 7,700 crore and Rs 6,900 respectively. The companies did not respond to ET's queries.
Interest rates of 4.65-8%
These papers have maturities running into months. Interest rates vary between 4.65% and 8% for papers issued after the latest rate cut by the RBI compared with 7-10% before the central bank policy announcement on March 27, dealers said.
"While we are paying for crude that was bought at rates higher than today's, our product sales have sharply fallen and prices too have come down. This has naturally created cash scarcity," an executive at a state-run refiner said.
Refiners usually get 30-day credit period on their crude purchase and are currently making payments for the supplies they took before the oil crashed on March 9.
"Our treasury guys are working the most these days," said a refinery executive, referring to the company's fundraising spree.
Demand has fallen so sharply that in March, which had just one week of lockdown, diesel sales for the entire month fell by a quarter. Jet fuel sales fell a third and petrol by 15%. April has been worse
Working capital needs
"Working capital requirement has gone up for oil marketing companies," said Ajay Manglunia, managing director - fixed income at JM Financial. "We could see rising CP issuances, which are now happening at softer interest rates. While companies keep receiving overseas shipments, there is no consumption demand amid nationwide lockdown."
State oil companies are also scrambling for cash to fund multiple government-imposed obligations. IndianOil, HPCL and BPCL are in the process of transferring a combined Rs 6,000 crore in April to eight crore Ujjwala cooking gas customers as advance payments for their free refills the government has promised them. A similar amount will be transferred in May as well as June as three free refills have been promised. And it's unclear when the government will reimburse companies.
Gas subsidies not paid
The government is yet to pay about Rs 25,000 crore of cooking gas and kerosene subsidy for the year 2019-20 to state oil companies, according to sources. State oil companies together contributed Rs 1,000 crore to PM-CARES fund to fight the Coronavirus pandemic.
On top of this, recent dividend payments by oil companies have also drained cash from their balance sheets.
RIL, IndianOil, BPCL and HPCL didn't respond to ET's emailed query for the story.
"The working capital requirement is likely to go up if lockdown extends beyond stipulated period," said Manglunia of JM Financial.
BPCL recently received A1+ rating, the highest grade for CPs, for its planned CP of Rs 13,500 crore from rating company Crisil. The amount is up from Rs 8,500 crore that was initially rated, signalling BPCL's plans to raise more funds.
