The combined consolidated borrowing of oil-marketing majors Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL) touched a five-year high of Rs 1.62 trillion at the end of March 2019, up 30 per cent from Rs 1.25 trillion a year ago.
IndianOil’s total debt stood at Rs 92,712 crore as of FY19-end, followed by Rs 42,915 crore of BPCL and Rs 26,036 crore of HPCL. The three companies together added Rs 36,402 crore to the debt pile, according to the Capitaline data.
The rise in debt was mainly because of higher capital expenditure and delays in subsidy payment, of around Rs 33,900 crore, for liquefied petroleum gas and kerosene from the government, as it tried to maintain fiscal balance. The 2018-19 debt figures, however, were still less than the FY14 combine consolidated debt of Rs 1.76 trillion for the three companies, when oil prices were above $100 a barrel.
“IOC has a larger capital expenditure plan compared to BPCL and HPCL. What works for HPCL is its larger marketing operations, which bring in stronger cash flows. In addition, HPCL has had a more modest capex plan, while BPCL has exploration and production as well as city gas distribution,” said a senior oil and gas analyst, who did not want to be named.
According to a Bank of Baroda Capital report, the debt for all three OMCs bloated by Rs 5,000 crore to 10,000 crore each in the March quarter due to delays in subsidy payment.
“Our debt for the financial year has increased to Rs 81,000 crore as of now, mainly owing to the government dues of around Rs 19,000 crore — out of which Rs 13,883 crore was on account of direct benefit transfer on LPG, Rs 3,395 crore was on kerosene, and the remaining Rs 2,000 crore went as PMUY deposit,” said A K Sharma, whose term as director (finance) at IndianOil got over on May 17.
Higher dividend payout to the government, arrears, and entry tax for Mathura Refinery were major reasons for higher borrowings by IndianOil.
Subsidy arrears create working capital issues, especially since the companies largely depend on import for crude oil.
The rupee averaged at 69.5 a dollar in 2018-19 compared to 64.48 in 2017-18. The rupee devaluation happened at a time when the benchmark Indian crude oil basket, too, rose by about 18 per cent to $69.8 a barrel in 2018-19.
“The increase in borrowings for the oil-marketing companies is credit negative, especially amidst an uncertain refining margin environment,” said Vikas Halan, senior vice-president, Corporate Finance Group, Moody’s Investors Service. He added, “The increase in borrowings is largely driven by high shareholder returns — in the form of both dividends and share buybacks, large capital spending, and high working capital outflow because of elevated oil prices.”
Halan expects the debt rise to be contained since no significant share buyback is expected in the current financial year. “Reduction in borrowings will be positive and could be driven by a decline in oil prices or faster reimbursement of subsidies by the government. We also do not expect a meaningful share buyback in fiscal 2020,” he added.
However, a few others expect debt for the three OMCs to continue to remain high. “Most of the debt increase seen in the last three years is largely capital expenditure-driven, which will continue in the current year. So I expect debt to be higher from the present levels,” said another oil and gas analyst.
According to Petroleum Planning and Analysis Cell, IOC is expected to invest Rs 25,084 crore as capex in the current financial year, while BPCL will spend Rs 7,900 crore, and HPCL Rs 9,500 crore.
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