New Delhi, Feb. 23: The cabinet today approved the issue of oil bonds worth Rs 11,500 crore to Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum as partial compensation for selling LPG and kerosene below the market price.

While Indian Oil will get bonds worth around Rs 6,000 crore, the rest will be shared almost equally between Hindustan Petroleum and Bharat Petroleum.

“The cabinet decided to issue the bonds to mitigate the losses of oil marketing companies because of a mismatch between retail prices of petroleum products and the global crude rates,” information and broadcasting minister Priya Ranjan Das Munshi said after the meeting.

The bonds, which are really ‘I owe you’ slips issued by the government to the PSU oil companies, will be released in two equal tranches of Rs 5,750 crore each. “The first tranche will be issued immediately and the second will come shortly thereafter,” he said.

The oil marketing companies have plunged into the red because of skyrocketing international prices of crude and the cap on domestic prices of LPG, kerosene and to a lesser extent petrol and diesel.

The bonds are expected to improve their balance sheets. The firms can even sell the bonds at a discount in order to raise money if required.

The bonds will carry a fixed coupon to be determined on the basis of the prevailing market rate of interest on central government securities with comparable maturities. The interest will be payable on a six-monthly basis.

The maturities of the bonds have been spread over different periods to minimise the burden on the government. While the first block of bonds worth Rs 2,000 crore have a maturity period of three years, the second block of Rs 2,000 crore can be redeemed after six years and the remaining Rs 1,750 crore will mature after nine years.

The second tranche of Rs 5,750-crore bonds will be issued on identical terms as the first, Dasmunshi said.