The Telegraph
Since 1st March, 1999
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Indian Oil in Rs 1200-cr debt swap

New Delhi, June 27: Indian Oil Corporation (IOC) has decided to go in for a Rs 1200-crore debt swap in order to reduce its interest burden. Old loans taken from banks at an interest rate of over 10 per cent will be prepaid and replaced with fresh loans which carry an interest rate of around 5 to 6 per cent.

Indian Oil director (finance) P. Sugavanam told The Telegraph that high-cost borrowing of the oil major will be swapped with low-cost loans to scale down the interest burden and the modalities are being worked out with the banks.

To begin with, Indian Oil will prepay a Rs 520-crore loan, which carries an interest rate of over 10 per cent, by September. The banks have already agreed to advance a fresh loan at 5.5 per cent per annum.

Another Rs 700-crore loan for which the company is paying an interest rate of 10.75 per cent will be prepaid in June next year. This will also be replaced by a fresh loan for which the interest rate is expected to be between 5.5 and 6 per cent.

Indian Oil has already monetised oil bonds worth Rs 5,276 crore which were issued to it in lieu of the government arrears in the oil pool account. This has helped it to reduce its total borrowings from Rs 19,070 crore to Rs 14,495 crore. As a result the debt-equity ratio of the company has come down sharply from 1.25:1 to 0.77:1.

However, the government is forcing the company to bear the burden of the subsidy on LPG and kerosene which is posing to be a drain on its liquidity. This impacts the profits of the oil major as working capital has to be taken from banks to plug the gap.

The public sector oil company has already suffered a loss of Rs 1,000 crore in the first quarter of the current fiscal on account of this subsidy.

Althougth the company has made an over Rs 6,000-crore profit for the financial year ended March 31, 2003, this would have been higher if it was free of the subsidy burden.

Senior Indian Oil officials are of the view that since profit is the indicator of the performance of a company, the government policy should not be aimed at reducing it. The government should instead appropriate a larger dividend to meet its financial commitments.

Since higher profit also reflects more robust health this enables a company to raise funds at lower rates of interest.

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