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Chennai Petro considering SBI's Rs 700-cr loan offer

M. Ramesh

CHENNAI, July 10

STATE Bank of India has offered to lend Rs 700 crore to Chennai Petroleum Corporation Ltd (CPCL).

The bank has told CPCL that it would lend Rs 400 crore on its own, and syndicate loans for Rs 300 crore from its associate banks.

Confirming this to Business Line, CPCL's Director (Finance), Mr S.V. Narasimhan, said the company was considering the offer.

CPCL needs around Rs 2,000 crore of long-term debt -- Rs 1,600 crore for its three-million-tonne expansion project at the Manali complex and the rest for other projects such as the jetty project near Nagapattinam and expansion of the Cauvery basin refinery.

The Oil Industry Development Board (OIDB) has agreed to lend Rs 1,000 crore, half of which has been sanctioned. Therefore, CPCL needs to raise another Rs 1,000 crore.

According to Mr Narasimhan, several banks have offered to lend including some foreign banks, but other things being equal, CPCL would like to go with SBI.

Mr Narasimhan said there would be no borrowing specifically for the Rs 2,340-crore Manali refinery expansion project; unlike in the case of a greenfield project, there is no ``financial closure''. Hence, the company could keep contracting loans as and wh en required.

Asked if CPCL would raise funds in the overseas market for the $75-million foreign currency component of the debt, Mr Narasimhan said many banks in India had come forward to lend in foreign currency, at rates as good as the company could get in the overs eas financial markets.

He said CPCL would get OIDB funds at 11.25 per cent, better than any bank's offer. For long tenors, such as 5-7 years, banks usually offered rates around their PLR. However, a company like CPCL could raise short-term debt at much lower rates, he said.

CPCL has, in fact, raised Rs 50 crore of short-term debt in two issues of debentures last week. These were raised at 90 basis points and 100 basis points above the Mumbai Interbank Offered Rate (MIBOR).

Over the next week, the company would go to the market again to borrow Rs 50 crore but this time it will not be a debenture but a short-term loan. The deal has been struck at 75 basis points above MIBOR, Mr Narasimhan said.