Debt pain of Indian energy giants eases as fuel reforms pay off

By Divya Patil and Saket Sundria

Lower oil prices and the scrapping of fuel subsidies have allowed India’s biggest energy companies to slash borrowings to the lowest in at least eight years.

Total debt at Indian Oil Corp., the nation’s largest refiner, stood at 419 billion rupees ($6.2 billion) at the end of September, down from 863 billion rupees in March 2014, according to the most recent data from company filings.

Liabilities at Hindustan Petroleum Corp., the third-biggest fuel retailer, shrunk 65 percent in the same period, the data show.


An improving credit profile is allowing refiners to raise long-term funds at cheaper rates to fund expansion in a nation that is overtaking Japan as the world’s third-largest oil user. Bharat Petroleum Corp.’s $600 million bond sale in January drew bids for three times the amount, helping the fuel retailer price the 10-year debt at the tightest spread over U.S. treasuries by any Indian company in a decade, according to data compiled by Bloomberg.

“Any new bond sale by them will be lapped up,” said Raj Kothari, head of trading at Jay Capital Ltd. in London. “With leverage of these quasi-sovereign companies declining, their position to service debt has improved significantly. A lack of issuance by them has created a dearth of good-quality issuers from India.” Jay Capital holds Bharat Petroleum bonds, he said.

Brent oil prices have fallen by half in the past three years, providing the government with a window to free up controls. Prime Minister Narendra Modi ended diesel subsidies in October 2014, completing a process started by his predecessor, Manmohan Singh, who got rid of gasoline subsidies in 2010. Refiners no longer have to sell the fuels below cost, which frees up cash to invest in infrastructure for faster growth.

“Our debt-equity position and profitability has improved, thereby scaling up the company’s standing in the market,” P. Balasubramanian, finance director at BPCL, said by phone. “We definitely get better deals now.”

Hindustan Petroleum plans to spend $8 billion over the next five years to help expand and upgrade its 60-year-old refineries as the International Energy Agency sees energy demand in India doubling by 2040. Indian Oil plans to invest about $6 billion in six years to boost capacity. Shares of the two refiners climbed for a third session at 9:29 a.m. in Mumbai.

“The refiners may have an advantage in terms of the quantum of money they have access to today, and incrementally to pursue projects related to domestic refining or inorganic opportunities,” said Ashwini Agarwal, a Mumbai-based portfolio manager at Ashmore Investment Management India LLP. “Their profitability has improved significantly.”