Indian Oil Corporation plan to cut debt hinges on demand revival
Gross debt at Indian Oil, the nation’s largest refiner and fossil fuel retailer, has risen from ₹86,400 crore at the beginning of 2019-20 to ₹1,16,000 crore at the start of 2020-21. About 50% jump in debt in the January-March quarter came following the weakening of demand due to the Covid-19 pandemic, dividend outflow and delay in fuel subsidy transfer by the government.
New Delhi: Indian Oil Corp’s mountain of debt, which has grown a third in a year to ₹1,16,000 crore, will start diminishing on an expected revival of fuel demand after the easing of lockdown and as benefits of cheaper crude start flowing in, a company executive said.
Gross debt at Indian Oil, the nation’s largest refiner and fossil fuel retailer, has risen from ₹86,400 crore at the beginning of 2019-20 to ₹1,16,000 crore at the start of 2020-21, as per a company executive. The debt had actually fallen at the end of December 2019 to ₹75,700 crore, according to the oil ministry data. About 50% jump in debt in the January-March quarter came following the weakening of demand due to the Covid-19 pandemic, dividend outflow and delay in fuel subsidy transfer by government.
In April too, Indian Oil and other refiners borrowed heavily to meet expanded working capital needs. On April 30, IOCNSE 1.32 % sold bonds worth ₹7,000 crore.“There had been pressure on borrowing for some time but we are seeing signs of easing for almost a week now. Things are going to improve as demand will likely improve and we will start getting the benefit of cheaper crude,” said an IOC executive.Besides, the government has begun transferring fuel subsidies to state refiners. In April, it paid Indian Oil about ₹1,700 crore of the ₹13,000 crore due on account of cooking gas and kerosene subsidy for 2019-20.The pandemic hasn’t altered Indian Oil’s capital spending plan of Rs 26,000 crore for the current fiscal year, the executive said. “We have started work on all projects. We want to speed things up as it would be good for the overall economy as well,” he said.The government has eased nationwide lockdown in much of the country, which is expected to recover demand that had fallen by a record 61% and 56% for petrol and diesel, respectively, in April from a year earlier.Another cash flow boost would come from reduced payment for crude oil. Refiners typically enjoy 30-60 days credit period on crude purchase and so the payments made in the past two months were mainly for expensive crude purchased before the oil rates crashed on March 9. The payments that come due now will be for crude purchased after the rates had slumped, reducing cash outflow, the executive said.