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Drone attack on Saudi Aramco’s facility to impact prices; refining margins to come under pressure

Red zone: Oil marketing companies may have to increase retail product prices in a fortnight. G.P. Sampath Kumar

Prices of petroleum products like petrol and diesel are likely to go up by up to ₹5 a litre each over the course of the next few days as international crude oil prices shot up after the drone attack on Saudi Aramco’s facility at Abqaiq. Benchmark Brent crude prices were up by over $6 at $67 a barrel on Monday, which is a jump of over 10%, and could rise further.

Oil marketing companies (OMCs) will have to increase the retail product prices in a fortnight.

Besides, the sharp jump in global crude prices may also put pressure on refining margins amid slowing demand, increasing the OMCs’ prospects of making losses.

“We do not rule out the possibility of moderation in marketing margins on auto fuels — a $10/per barrel rise in global crude and product prices may require OMCs to increase retail price of diesel and gasoline by ₹5-6/litre in the following fortnight,” said Kotak Securities in a research note to its clients.

Shares of Indian refiners closed in the red on the BSE during Monday’s trade. Bharat Petroleum Corporation Limited (BPCL) closed down 7% to ₹380.10, Hindustan Petroleum Corporation Limited (HPCL) lost 5.7% ending at ₹255.55, Chennai Petroleum Corporation Limited (CPCL) closed down 3% to ₹188.75, while Indian Oil Corporation Limited (IOCL) and Reliance Industries (RIL) lost 1.15% and 1.20% respectively.

Oil output drops

Following the drone attack on its oil processing facility at Abqaiq, Saudi Aramco has cut down its oil production by 5.7 million barrels per day (mbpd).

This has reduced global oil supply by 6%, which is huge. However, this will not result in a physical shortage of oil for India.

The real impact for India will be the rise in prices.

“The $6-7 per barrel increase in oil prices has an immediate impact on India. Based on past experience, if the price of oil crosses $70-75 per barrel, the government may start thinking of bringing back the administered pricing mechanism,” Amit Bhandari, fellow for energy and environment at Gateway House, an Indian think tank on foreign policy, told The Hindu.

Meanwhile, an Air India official said a 10% rise in the cost of aviation turbine fuel adds ₹50 crore to its monthly fuel bill.

He added that while there would be no immediate effect, if the situation persisted, all airlines would be forced to raise fares.

(With inputs from Jagriti Chandra)

Funds to partially relieve the government airline of its debt liabilities

Strong footing: The issue was oversubscribed despite market volatility, says AIAHL director Vinod Hejmadi. AFP

Air India Assets Holding Limited (AIAHL), a special purpose vehicle created to partially relieve Air India of its debt liabilities, on Monday raised ₹7,000 crores to refinance its debt after a bidding process where its bond issue was fully subscribed.

The development means that AIAHL has been able to refinance nearly 25% of the ₹29,464 crore debt at a rate of 6.99%, which is lower than the interest rate Air India has been paying on its loans by 150 to 200 basis point, according to a senior Air India official.

AIAHL was set up by the government in February after a Cabinet decision and nearly half of the total ₹58,000 crore of debt of Air India was transferred to it. The bond issue is for a three-year tenure.

“This reflects the confidence of the entire market in securities fully backed by Government of India. The positive response received from all categories of Investors will act as a stimulus to the disinvestment process of Air India Limited,” Air India CMD Ashwani Lohani said in a press statement.

“The issue was oversubscribed by 20.83 times despite the volatile market conditions today. It was the largest mobilisation of funds for yield-based bidding in the history of BSE’s Electronic Bidding Platform,” AIAHL director, Vinod Hejmadi said.

Among the entities that won the bids, the State Bank of India group had put in bids worth ₹3,640 crore, ICICI Group ₹1,900 crore and Axis Bank ₹1,050 crore, according to sources.

Air India officials also say that soon they will issue bonds for ₹15,000 crore for a ten-year tenure where they expect interest from EPFOs and insurance companies.

This will leave it with a debt of ₹7,400 crore for which the government has already guaranteed non-convertible debentures.

GoM meet

The development comes at a time the Group of Ministers headed by Home Minister Amit Shah is expected to meet on Thursday to take a decision on the modalities of Air India’s privatisation, including, the quantum of disinvestment, debt waiver as well as easing of FDI norms to attract foreign players.

FDI for Air India is right now capped at 49% through approval route.

Minister promises sops for electronics manufacturing

Ravi Shankar Prasad

Stating that its investments in India till now were just a ‘tip of the iceberg’, Union Minister Ravi Shankar Prasad on Monday called upon tech giant Apple to create a ‘robust’ presence in India.

The Minister, who holds the portfolio of Electronics and IT, was speaking to reporters after a day-long conference with over 50 top executives from the electronics manufacturing sector.

“Apple has started making phones in India, including components...They have started iPhones and components for exports. But this is just the tip of the iceberg. I want a robust presence of Apple in India,” Mr. Prasad said. He also called upon South Korean electronics giant Samsung to have a ‘super robust’ presence in India.

At present, two Apple phones — iPhone 6S and iPhone 7 — are assembled in India through contract manufacturer Wistron.

Promising all support from the government, including sops for making in India and exporting from here, Mr. Prasad pitched for making India a hub for electronics manufacturing. India has set a target of creating $400 billion electronic manufacturing ecosystem by 2025.

“India will offer you human resource, investor-friendly policies, and incentives for making in India, and for exports,” the Minister said. He added that the government would come out with key measures to incentivise exports from India in two to three months.

BPCL worst-hit, sheds more than 7%

A surge in global crude prices following drone attacks on oil facilities at Saudi Arabia made equity investors jittery on Monday with the benchmark Sensex shedding 900 points during the pre-open session.

While stocks across sectors lost ground, the worst hit were oil marketing majors as crude prices jumped almost 10% amid concerns relating to a fall in global supplies.

The benchmark indices, however, recouped most of the losses and many mid-cap and small-cap stocks even gained ground.

The 30-share Sensex, which fell to 36,485 during the pre-open session, settled the day at 37,123.31, down 261.68 points, or 0.70%. The broader Nifty managed to close at 11,003.50, shedding 72.40 points, or 0.65%.

Geopolitical risks

“Geopolitical risks have come to fore once again,” said Gaurav Dua, head, capital market strategy and investments, Sharekhan.

“Over the weekend, the drone strikes on Saudi’s oil processing facilities have added to the trade war-related uncertainties and deteriorated market conditions globally. Moreover, Indian economy also gets impacted due to surge in crude oil prices,” he added.

The BSE Oil & Gas index was the worst performer of the day, shedding 1.61%. BPCL was the worst-hit, losing over 7% while HPCL and IOC were down 5.70% and 1.15% respectively.

The effect of the surge in crude prices was visible on airline stocks with Interglobe Aviation and SpiceJet losing in the range of 2-4% each. Jet Airways lost a marginal 0.27%. Among the Sensex pack, SBI, M&M and Yes Bank lost over 2% each while stocks like RIL, L&T, Indusind Bank, Tata Steel, HDFC and Asian Paints lost between 1-2% each.

With wider choices, hopes to bring 100 mn more on board

Manish Tiwary

Not seeing any slowdown in consumer demand, Amazon India expects this year’s festive sales to be “bigger and better” than last year on the back of increased number of sellers and products offered.

The e-commerce firm, which on Monday announced its festive sale ‘Great Indian Festival’ from September 29 to October 4, saw the number of sellers going up to 5 lakh from about 3.8 lakh a year ago, while selection has grown to 200 million products from 170 million last festive season.

“The Great Indian Festival is important for us to bring the next 100 million customers online, many of them from tier 3 or even tier 4 towns,” Manish Tiwary, vice president – Category Management, Amazon India, said.

“So far, we have covered first 100 million... so for the journey forward to reach the next 100 million customers in India we are getting a whole new selection, investing in deliveries, ease of return... all this is part of this effort,” Mayank Shivam, director, Category Management, Amazon Fashion India, told The Hindu.

“We are confident that numbers will be great. We are very excited and buoyant about this Diwali...confidence comes from number of sellers and the range they are offering...it will definitely be bigger and better than last year. There is no doubt about... all the momentum we have seen, that this will be our biggest Diwali,” Mr. Jain said.

Amazon’s rival Flipkart had earlier announced that it will host its flagship ‘The Big Billion Days’ sale from September 29 to October 4.

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