Indian Oil Borrows More As Government Fails To Clear Subsidy Dues
An Indian Oil Corporation petrol station is pictured in New Delhi, India. (Photographer: Amit Bhargava/Bloomberg News)

Indian Oil Borrows More As Government Fails To Clear Subsidy Dues

Indian Oil Corporation Ltd.’s debt in financial year 2018-19 rose by nearly a half—its biggest yearly jump in 13 years—to its highest level since listing as the government is yet to pay subsidy dues to India’s largest fuel retailer.

The government, which provides subsidy on liquified petroleum gas and kerosene, reimburses the oil marketing companies for the shortfall in revenue.

“Government dues worth almost Rs 19,000 crore are pending as against Rs 9,400 crore last year which has led to increase in debt levels,” AK Sharma, director of Finance at Indian Oil Corporation said in a press conference after the company reported its fourth-quarter earnings.

The government had maintained petroleum subsidy at Rs 24,833 crore for FY19—largely unchanged from the previous fiscal—despite higher crude oil prices.

The unpaid dues, along with higher payouts to shareholders and a rise in capital expenditure seems to have added to the oil marketer’s debt. In December last year, the company had announced its biggest-ever payout to shareholders.

The state-run fuel retailer also announced a dividend of Rs 9.25 per share and its first-ever buyback worth Rs 4,435 crore in FY19. This, according to BloombergQuint estimates, would have cost the company Rs 15,170 crore including the dividend distribution tax.

The company, according to Petroleum Planning and Analysis Cell, incurred its highest-ever capital expenditure of Rs 26,548 crore for upgrading its refineries and various other projects and investments in FY19.

Fitch Ratings, in its report, said the financials of India’s state-owned oil marketing companies may be at risk in the near to medium term due to increase in shareholder returns. The higher shareholder returns, it said, will put more pressure on the financial profiles of the companies which have large investment plans for the next two years.

To be sure, Fitch Ratings has a ‘BBB-’ rating for the company with a stable outlook, similar to that of India. This could be downgraded only if there is downgrade in the sovereign rating or if the leverage increases above 3.5 times on a sustained basis.

Indian Oil’s leverage ratio is close to 2.6 times as compared to 1.5 times last year, according to BloombergQuint’s calculation.

But the public sector fuel retailer doesn’t see that as a concern.

“Today our debt is down to Rs 81,000 crore, while our debt-to-equity is close to 0.79 times which is fairly okay,” Sanjeev Singh, chairman of Indian Oil Corporation Ltd., told BloombergQuint. The company keeps getting these dues from the government, but once in a while there are delays, he said.

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