PSU oil firms’ debt reduces on fuel reforms & foreign currency loans

Reforms in the fuel sector have helped three oil majors such as Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) to significantly reduce their debt levels in the past three years.

IOC’s has cut its debt by 37 per cent to Rs.497 billion in 2014-15 from Rs.783 billion in 2013-14. BPCL’s debt was down by 52 per cent to Rs.111 billion from Rs.235 billion, while HPCL’s debt fell by 47 per cent to Rs.170 billion from Rs.324 billion.

Three PSU oil majors have replaced their high cost debt with low cost foreign currency debt, which is based on floating LIBOR. More over, fuel reforms helped in reducing working capital loan. Also, 45 per cent decline in crude oil price from $110bbl to $50bbl, which led to lower requirement of working capital loan, according to Emkay Global Financial Services.

Interest cost of IOC came down to 6.9 per cent (Rs.34 billion) in 2014-15 from 8.2 per cent (Rs.64 billion) in 2012-13.

In the past two years, the company raised close to two-thirds of its total debt as foreign currency loans. Both BPCL and HPCL also saw their interest cost come down significantly due to due to higher share of foreign currency loans.

For IOC, Marketing performance has improved significantly to 77 per cent of EBIDTA in 2014-15 from from 33 per cent of EBDITA in 2012-13.

This is mainly attributable to increase in marketing margins of diesel and petrol, post deregulation.

With favourable debt/equity ratios, three companies can easily fund their capex for the next 2-3 years through a combination of internal accruals and by raising long term foreign currency loans at competitive rates, said the brokerage house.

For the next three years, IOC has a capex plan of Rs.467 billion, while HPCL has chalked out a capex of Rs.222 billion.

BPCL’s capex for the next three years is estimated at Rs.214 billion.IOC is implementing projects valued at over Rs.120 billion, which would add an additional 22 million tonnes in capacity and about 6,000 km in length to the existing pipeline network of 11,220 km.