Oil cos rush to raise short term debt via CPs

“We can see a rush in CP sales by oil companies,” said Ajay Manglunia, managing director and head of the Investment Grade Group at JM Financial.

They are probably using short-term debt to fund working capital requirements after reporting record losses, he said, adding: “This also weighed on borrowing costs with CP rates going up.”

On Wednesday, short-term Treasury Bill yielded up to seven basis points higher in the primary market.

Meanwhile, CP rates have increased by up to 50 basis points since the second-third weeks of July, amid a higher supply of papers coupled with expectations of more rate hikes by the central bank.

On July 18,

sold Rs 2,300 crore of CPs, with a maturity of about a month and half, through 10 trades offering 5.08-5.12%.

The company offered 5.61% on August 8 when it raised Rs 2,500 crore with debt of a similar maturity.

“Surging CP issuances amid falling banking system (liquidity) will push the short-term rates higher,” said Soumyajit Niyogi, director at India Ratings & Research. “Our analysis suggests that short-term finding requirements (of these oil companies) could go up by 28% from last year, owing to elevated input cost and lower cash flows from operations.”

Oil marketing companies, primarily IOC,

and , reported a combined loss of about Rs 18,500 crore for the fiscal first quarter ended June 30, as a freeze on petrol and diesel prices for retail consumers meant they sold the fuels below cost. This likely forced them to mobilise more working capital from the market to stay afloat, bond dealers said.

BPCL offered 5.81% for an about three-month CP on August 8. The price was nine basis points higher than the rate offered nearly two weeks earlier.

The Rs 28,365 crore these companies raised via CPs so far in the July-September quarter is about 82% of what they raised in the previous three months.