The Hindu Business Line : IndianOil sells Rs 2,277 cr of oil bonds

Bankers said that the sell-off included the 7.33 per cent maturing in 2009, the 8.13 per cent maturing in 2021, 8.20 per cent maturing in 2024 and the 8.40 per cent maturing in 2026.

IOC effected the sale of the securities through a clutch of investment bankers that included AK Capital, Darashaw & Company and ICICI Securities. Darashaw’s Associate Vice-President, Mr Paritosh, confirmed the placement.

The placements were made on the day after the issue was opened, he said and added: “A large volume of the issue was picked up by Life Insurance Corporation of India.”

Banks and mutual funds picked up the bulk of the Rs 400-crore of the shorter maturity, 7.33 per cent security at a Yield to Maturity (YTM) of 8.36 per cent. The YTM fixing though was at least 60 basis points more than the equivalent government security. The differential pricing was largely on account of the absence of an SLR (Statutory Liquidity Ratio) status for oil bonds.

Technically, only direct government borrowings are treated as SLR securities. Oil bonds, though placed by the Government, are not treated as direct government borrowings, since they are mostly for settlement of subsidy dues on under-recoveries of refineries. However, like all government borrowings, the oil bonds carry no risks and are therefore “zero risk weighted” assets.

LIC BIDS FOR LONG-DATED PAPERS

Bankers said that LIC’s preference was for the longer maturity securities. LIC was the largest bidder for the long-dated bonds. Small amounts of the long-dated securities were also picked up by provident funds. LIC and provident funds preference are traditionally for long-dated securities, since most of their liabilities are long dated.

Despite the slide in yields on Tuesday, after the credit policy, the pricing of the secondary market sales of the long-maturity bonds was rough. LIC, the bankers said, was able to yank a weighted-average YTM of 9.22 per cent on all long-dated securities.

Bankers said that despite the shortage of long-dated securities, LIC was able to secure yields that favoured the buyers.

The bankers said that the LIC’s aggressive pricing indicated that the sale was not entirely profitable for the oil company.

This YTM of the Government securities — with a maturity profiles of 13, 16 and 18 years — were at least 100 basis points lower.

However, on the flip side, if IOC were to borrow from banks, the cost would have been far higher, the bankers said. In fact, they said that the pricing was actually favourable especially since ‘AAA’ rated corporates borrowings for long-term funds were at rates of over 10 per cent.

Despite the high pricing, more such placements are expected. A.K. Capital’s Mr Rohit Srivastava said: “IOC’s oil bond sales will serve as benchmarks for similar efforts by other refining companies.”

Among the oil bond sell-offs expected include those from Bharat Petroleum and the Hindustan Petroleum Corporation. Public sector entities such as the Food Corporation of India and Fertiliser Corporation of India also have similar subsidy bonds on their books.

Related Stories:
Govt issues Rs 9,297 cr oil bonds
Oil bonds worth Rs 11,256 cr issued

More Stories on : Petroleum | Corporate Bonds

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page