For the first time the country’s largest oil marketing company, Indian Oil Corporation, will

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issue dollar-denominated bonds in overseas markets to raise close to $500 million.

The state-owned oil company has retained the services of three banks to manage the issue. They are HSBC, Standard Chartered and Deutsche Bank, said an oil industry official.

The company will use the money so raised for its expansion projects and completion of the refinery at Paradip in Orissa. S V Narasimhan, director (finance) of the company declined comment.

The move comes at a time when the government plans to allow all public sector oil companies to make follow-on offers (FPOs). IndianOil is among 25 companies in which the government intends to dilute its holding either through new share issues or divestment.

It now holds 78.92 per cent in the company and retail investors 2.87 per cent. Other state-owned oil companies hold 9.24 per cent, and the balance is with international and national banks, financial institutions, mutual funds and insurance companies.

The company’s financial data reflect receivables of close to Rs 76,000 crore, now held in bonds issued by the government against payable subsidies. The balance sheet till March last year puts the company’s outstanding debt at Rs 45,000 crore.

The tenure, coupon rate, moratorium and repayment terms of the dollar bonds are yet to be finalised. Because oil projects have long gestation, the tenure of such bonds range from 10 to 15 years.

IndianOil chairman Sarthak Behuria is on record that the company would complete the Rs 30,000 crore, 15 million tonne per annum refinery at Paradip on time.

The company owns and operates eight of 19 refineries in India and has an aggregate refining capacity of 49.7 million tonnes a year. Including two refineries of Chennai Petroleum Corporation, the total capacity is 60.2 million tonnes a year.

Although IOC hopes to take advantage of lower interest rates, it may actually end up paying high rates, as the overseas bond market is rising but yet to reach its peak, according to Arvind Mahajan, executive director of KPMG.

Considering the financial potential and business volumes, a section of the market will be interested in the bonds, says Mahajan. The money, he adds will help in the expansion of the company, which has shown an interest in the gas business and is looking at upstream operation abroad.

About the prospect of the IndianOil stock, Ashish Kapoor, chief executive officer of Invest Shoppe, says, “The company has strong fundamentals and a robust distribution network. Unless the government moves away from administered prices to market-linked rates, there is not much upside on the stock. The stock will trade range bound.”

On the Bombay Stock Exchange the scrip closed Wednesday at Rs 315, down 0.19 per cent. It hit a 52-week high of Rs 790 on September 29.