Indian Oil Corporation is preparing a war chest of Rs 80,000 crore to fund a major acquisition in the exploration & production (E&P) sector. The country’s largest oil refining & marketing company will ask its board to approve a doubling of its borrowing limits on Tuesday. IOC can currently borrow up to Rs 20,000 crore from the domestic market through loans and credits, besides foreign currency loans of up to Rs 18,000 crore ($4,500 million). The company’s paid-up capital and free reserves, as on December 31, 2007, works out to Rs 41,341 crore.“IOC keeps exploring the possibility of acquisition, particularly in the field of E&P. The additional funds (following the increase in borrowing limits) may also be required in case of (any) acquisition,” states an IOC note for consideration by its board. IOC holds E&P assets in Libya, Gabon, Iran and Nigeria. “It is on the lookout for an oil producing company, mainly in Africa or in CIS countries,” said a senior company official. The new limit will make IOC the largest borrower in the public sector. The estimated borrowings of IOC as on March 31, 2008 are Rs 35,400 crore, an increase of Rs 8,300 crore over the previous year’ Rs 27,083 crore. Capital expenditure requirements for 2008-09 have been projected at Rs 10,500 crore, against the company’s total fund requirement (on account of capex) of Rs 50,994 crore for the 11th Plan period. Despite the present borrowings, the company remains under-leveraged.The additional borrowings are also a fallout of rising crude oil prices, a sustained increase in under-recoveries, coupled with the low liquidity of special oil bonds, which have impacted its working capital requirements. As on 31 December 2007, IOC’s working capital in the form of inventory increased to Rs 28,971 crore. Failure by the government to revise domestic retail fuel prices in line with soaring global crude oil prices has resulted in a huge loss of revenues—nearly Rs 350 crore a day. Further, constraints over the liquidity of the special oil bonds, including their non-SLR status, and oversupply of these bonds, have compounded the problems, forcing IOC to go in for higher borrowings. The board of IOC had on March 1, 2008 allowed the company to go in for increased borrowings of Rs 38,000 crore, which are within the limits laid down under Section 293 (1) (d) of the Companies Act. GLOBAL Gambit•New limit will make IOC the largest PSU borrower •Estimated borrowings as on March 31 are Rs 35,400 crore•Firm burdened by crude prices, under-recoveries, illiquid special bonds•IOC holds E&P assets in Libya, Gabon, Iran and Nigeria
