Date:23/06/2006 URL: http://www.thehindubusinessline.com/2006/06/23/stories/2006062302810200.htm

Back Repo rate hike costing oil marketing cos dear

Our Bureau

`We now have to offer higher discounts on oil bonds'

Kolkata. June 22

The recent hike in repo rates by the RBI has cost the oil marketing companies dearly as the oil PSUs are now forced to offer higher discounts for selling the bonds in the secondary market.

The RBI has hiked the repo rate from 6.50 per cent to 6.75 per cent, earlier this month. The reverse repo rate was increased from 5.50 per cent to 5.75 per cent. The move was apparently taken to contain inflationary pressure arising out of fuel price hike.

"We are now offering 0.5 percentage point higher discount on oil bonds," confirmed a senior official in Indian Oil Corporation. IOC had received Rs 6,500 crore worth of bonds to compensate under-recoveries last year and has already sold bonds worth close to Rs 1,700 crore, in two tranches, inclusive of some held by its group company IBP Ltd.

The total cost of selling the bonds in the market following upward revision of repo rates is pegged at two per cent.

The company is planning to offer the entire bouquet of Rs 2,200 crore of short-term (three years) bonds. Though a relatively small portion of longer-term bonds was also offloaded, these instruments attract very low demand, warranting higher discounts.