The Hindu Business Line : BPCL looking forward to KRL merger

Reeling from under-recoveries for more than a year, BPCL is eagerly looking forward to the merger of Kochi Refineries Ltd to bring in some much needed financial resources.

According to sources, the proposed merger scheme, which is yet to be cleared by the Department of Company Affairs, would award BPCL with roughly 3.37 crore shares through a 2.25:1 swap ratio which if offloaded in the market would bring home close to Rs 1,410 crore at current prices.

BPCL closed at Rs 418.40 - down 2.84 per cent on the NSE on Monday. Kochi Refineries closed at Rs 174.80 on the BSE.

Prices bullish

As the oil prices are expected to remain bullish in the medium term and a transparent mechanism is yet to be put in place to tackle the issue of mounting under-recoveries, the said resources may particularly come handy to BPCL, which is living only on short-term borrowings to meet the working capital requirements.

The impending situation has made the company so vulnerable that the debt-equity ratio has worsened from a relatively healthy 0.6 per cent to over 1.1 per cent since March 31, 2005. Though they feel the company has headroom to borrow till debt-equity touches 1.5, company sources admit that the situation is running the danger of downgrading of credit ratings, which would in turn make borrowings costlier.

The impact is relatively higher on the interest payments as the entire Rs 2,500-3,000 crore additional borrowings during the period are short term in nature and the average interest cost has gone up by at least one per cent. Total borrowings now stand between Rs 6,500 crore and Rs 7,000 crore.

Though sources maintain that the projects tied up through long-term debts are still safe, they admit that indecisions at the Centre about devising a mechanism which can match the vagaries of the crude oil market if prolonged for some more time may pose financial constraints that can jeopardise the growth plans.