IOCL raises onshore bonds at below sovereign rates

One of the big challenges that the Indian government is facing is that there are no willing buyers for its bonds at the yields that it is willing to offer. Obviously, the yields that the government is offering on its bonds is way below the existing yields, which explains the lack of interest. But in a rather refreshing development for the bond markets, Indian Oil Corporation (IOCL) raised funds in the onshore bond markets at below benchmark rates.

IOCL may have returned to the onshore bond market after a break but it managed to price its 5-year rupee bonds at a coupon rate of 6.14%. Ironically, a similar maturing government bond is currently trading at an annualised yield of 6.29%. That means, there is still appetite in the market for bonds that pay yields lower than the current existing yields in the market provided the gap is not too large. That is exactly what the IOCL bond issue has exhibited.

For now, let us get back to the specific case of IOCL. The oil refining and marketing company raised a sum of Rs.1,500 crore in bonds with a five year maturity at a coupon rate of 6.14%, nearly 15 bps lower yield compared to the comparable sovereign bond yields prevailing in the market currently. The strong demand that was seen for the bond issue at 6.14% yield is a clear indication that there is appetite for PSU paper at yields that are still attractive.

The proposed issue of IOCL saw strong demand from investors, which is not surprising considering the relatively dovish inflation guidance by the RBI in its February monetary policy. With the rupee also fairly stable against the US dollar, the currency risk at these levels is also quite limited for the global investors. Against the issue size of Rs.1,500 crore, IOCL got expression of bids for a total of Rs.5,403 worth of bonds at yields ranging from 5% on the lower side and 6.7% on the higher side. IOCL had raised for general corporate uses.

Check - RBI Monetary Policy Highlights

There are some interesting developments happening on the IOCL front at the corporate level. For instance, IOCL has decided to increase crude purchases from Iraq by 11.5% in 2022 to 390,000 barrels per day (bpd). This will make up for the shortfall in supply from Mexico and Kuwait. Iraq is the top supplier of crude to India even as HPCL has also decided to procure more crude from Iraq.

In other developments, IOCL is also looking at buying out the IL&FS Paradip Refinery. The Paradip Refinery, owned by the beleaguered IL&FS, had been put up for sale as part of the debt resolution process of IL&FS. Details of the same had not been included in the last briefing by the board, so there is still no official word on the subject.