Bharat Petroleum Corp. plans to start using crude oil derivatives and ramp up the number of interest-rate swaps it enters to hedge its liabilities portfolio in the coming months. Panchpakesan Bala Subramanian, chief manager of the treasury in Mumbai, said that with board approval, which is just a formality, the firm will look to re-enter the interest-rate derivatives market by December and start using crude oil derivatives in January. Its exposure to imported oil in the first quarter will be approximately 20 million barrels, which was equivalent to USD536 million on Friday.
Bharat made its derivatives debut last year, using interest-rate swaps to hedge its liabilities portfolio (DW, 8/4/00). It currently purchases imported crude oil from Indian Oil, but will begin importing directly from the market in January and will then look to lock in prices with crude oil derivatives, continued Subramanian. It will likely start with crude oil forwards and then move into options when it has gained experience.
Bala Subramanian said it will use interest-rate swaps to hedge 25-30% of its USD200 million liabilities portfolio, which is mostly made up of fixed-rate loans. In the transactions, Bharat will look to pay a floating rate, based on the Mumbai Interbank Offered Rate, which is currently around 7.5% plus a premium, and receive fixed, which now stands around 8%. He continued that the company is looking for floating rate exposure because it believes rates will continue to fall, declining to elaborate. Likely sizes of transactions will be around USD5-10 million, he continued. He declined to name potential counterparties but said price is the most important factor in choosing counterparties. Bharat is not currently in discussion with counterparties.
