State-run IndianOil Corporation (IOC),which is deep in debt,has offloaded in the market some of the oil bonds it holds to raise about R300 crore so far this fiscal.
The petroleum ministry said on Friday if the government does not announce further cash assistance,IOC is expected to declare losses for the second quarter.
The company is facing a severe cash crunch arising from selling diesel,LPG and kerosene below cost.
The countrys largest oil refiner-cum-retailer,which raised its petrol price (by R1.80 a litre in the capital) from Thursday night,has also incurred mark-to-market (MTM) losses on its external commercial borrowing,adding to the already high cost of servicing its more than R70,000-crore debt.
We have about $5 billion foreign currency loans. There are always some MTM losses, IOC director finance P K Goyal told FE. He,however,declined to elaborate on it as the company is finalising its second quarter results due on November 9. Goyal said offloading oil bonds is a regular process. At the end of last fiscal,the company was holding bonds worth R19,545 crore.
IOCs interest cost this fiscal is expected to be way above last fiscal’s outgo of R2,669.83 crore as the company continues to borrow at higher rates to meet its working capital requirement. In the first quarter itself,its borrowing cost was R1,040 crore and it is expected to go up four times for the full fiscal.
IOC has been increasingly relying on foreign currency loans in order to reduce the risk of hardening interest rates in the domestic market. The company makes marginal gains on rupee depreciation on account of its export of finished petroleum products and petrochemicals,which is not sufficient to offset the huge liability on its crude imports. Oil importers lose R8,000 crore a year for a depreciation of R1 in the domestic currency. The domestic currency has depreciated more than 10% (or R4) since the beginning of the fiscal,making IOCs crude oil imports and debt-servicing costlier.
The companys debt to equity ratio,at 0.95:1 as on March 31,2011,which is set to worsen on account of higher borrowings,is also likely to put pressure on its future investments in upstream diversification into oil and gas exploration and downstream expansion of petrochemical projects.
IOC is awaiting a decision on cash subsidy from the government to declare a decent second quarter result.
The combined losses of BPCL and HPCL for the first half are more than R12,000 crore and IOCL is also likely to be in red,if no further cash assistance is announced, the ministry said.
The combined losses of the three firms in the first half is expected to be R64,900 crore,it said.
The oil ministry is pressing the finance ministry to give oil retailers a cash assistance of R28,000 crore,including the subsidy for second quarter and the unmet subsidy for the first quarter. North Block has so far only agreed,but not released R15,000 crore.
The retailers are awaiting a government decision on raising the prices of diesel,LPG and kerosene,on which they lose R319 crore a day,which would aggregate to R1,32,000 crore this fiscal.