Borrowing costs for India’s biggest refiners are surging to the highest level in at least a year as the prospect of tighter sanctions against Iran threatens supplies to the world’s fourth-largest oil consumer.
Yields on the 4.75 percent dollar-denominated debt of Indian Oil (IOCL) Corp., the nation’s largest refiner, rose 19 basis points in the past month to 4.28 percent, according to data compiled by Bloomberg. Yields on the 2016 dollar convertible bonds of Indian refiner and power plant operator Essar Energy Plc (ESSR) jumped 232 basis points to 19.74 percent. At the same time, yields on London-based BP Plc’s 2019 notes dropped 35 basis points to 2.72 percent.
Disruption to shipments from Iran, India’s second-biggest oil supplier, may deepen losses for oil companies that are required by the government to sell fuels below cost. Costlier energy imports would also stymie central bank efforts to rein in inflation of more than 9 percent and worsen an economic slump that fueled a 16 percent tumble in the rupee in 2011.
“The oil companies will have to bear higher costs if they have to buy oil from elsewhere,” Raj Kothari, a bond trader in London at Sun Global Investments Ltd., said in an interview on Jan. 10. “The bonds that are related to this issue, like those of Indian Oil, are definitely going to get affected negatively.”
