The Hindu Business Line : Crude shock forces IndianOil to increase borrowings

While the company has already requested the Centre for increasing retail price of petrol and diesel to maintain the profitability, borrowings have started moving up in November.

Crude prices closed between $92 and $94 a barrel at the Nymex futures market on Saturday.

“We have raised approximately Rs 1,000 crore through private placement of 90 days non-convertible debentures only a week back. Our total borrowings which had come down to Rs 26,500 crore in October may hover in the range of Rs 28-29,000 crore by the end of this month,” a company source told Business Line.

Package for liquidity

According to him, the current mechanism of upstream sharing and issue of oil bonds by the Centre is not enough for the IOC to maintain profitability.

“Unless and until a package is announced to improve the liquidity, our profitability we go down in the third quarter,” he said.

“We are now left to absorb 24 per cent of the total impact of the recent crude price volatility. This is far beyond our capacity.

“If we have to maintain profitability we cannot absorb more than 10-12 per cent impact,” the source said.

On the overall impact on the company, the source, however, denied to call the situation as alarming.

“We are keeping an eye on the situation.

“Our cash flow is getting affected due to increasing cash loss (Rs 2,700 crore a month at current prices). We will wait for a month before taking any view on the issue,” the official added.

According to the official, the only solace in these hard times is a rising trend in gross refining margin since end September.

After a lull in the second quarter, GRM moved up to approximately $9 a barrel in October and has crossed the $10-barrier in November. IOC posted a GRM of $8.5 a barrel for the entire first half.

This coupled with exchange gain (due to weak dollar) and a soft international borrowing market has made borrowings cheaper compared to the corresponding period last fiscal.