NEW DELHI: The Centre has urged oil sector PSUs to tap the overseas markets for their capex needs, with oil minister Dharmendra Pradhan observing that the Indian energy sector has become an attractive one for foreign investors. “Many companies have successfully raised funding through overseas bond market and this funding route is likely to grow manifold going forward,” Pradhan said at an energy summit here on Friday.
The government has nudged state-run firms like Indian Oil Corporation (IOCL), Oil India (OIL), and Bharat Petroleum Corporation (BPCL) to increase their external borrowings, both through dollar bond issues and loans. The RBI, for its part, had already increased the External Commercial Borrowings limit for state-run oil marketing companies in October last year to $10 billion for 3-5 years for working capital purposes, while also waiving the individual limit of $750 million and mandatory hedging requirements. Several PSUs have already taken the foreign currency borrowings route this year.
According to analysts, Indian PSUs have been able to get attractive rates overseas due to the sub-sovereign nature of their bonds (since the GoI is the majority shareholder) and the fall in global bond yields. “... this is a new trend among PSUs, to borrow in foreign markets since rates are cheaper and their sovereign guarantees makes the rates very attractive,” Amit Bannerjee, an independent merchant banker, had told TMS earlier.
But, while the Centre had raised the possibility of floating sovereign overseas bonds during the Budget, the plan seems to have taken a back seat after several economists raised concerns about the risks involved, especially since these would become extremely expensive to service if Rupee falls in value.
WHY OVERSEAS?
Indian public sector companies have been able to get attractive rates overseas due to the sub-sovereign nature of their bonds and the fall in global bond yields.