Oil bonds to get more value

Written by Banking Bureau | Mumbai, May 30 | Updated: Jun 1 2008, 02:36am hrs
In a further relief to oil marketing companies, the Reserve Bank of India has decided to put in place a Special Market Operations mechanism (SMOs) that will allow for more trading in oil bonds. The move will increase the liquidity of the bonds and therefore make the buyers of these bonds from the oil companies offer better price for them.

This comes on the back of the RBIs move on Thursday when it raised the limit for banks lending to public sector oil firms upto 25% of the banks investment limits from the earlier 15% level.

Accordingly, the central bank will conduct open market operations (outright or repo at its discretion) in the secondary market through designated banks in oil bonds held by public sector oil marketing companies in their own accounts. This will be subject to an overall ceiling of Rs 1,000 crore on any single day provide equivalent foreign exchange through designated banks at market exchange rates to the oil companies, an RBI statement said.

This is expected to improve liquidity and fix other impediments in the financial markets for oil bond issuances. The SMOs will aim to minimise potential adverse consequences for financial markets in a transparent manner, the RBI statement added. The plan will whet the market appetite for the next tranche of oil bonds to oil marketing companies as a part of a revival package to combat rising crude prices that has hiot their bottom lines even as they cant raise the low retail prices of their petro products due to possible political impact.