Cairn India's Indrajit Banerjee is the best treasurer
Manu Kaushik July 7, 2011
The past three years have been unprecedented for petroleum drillers across the world, as volatile prices have made cash flows unpredictable. But things have been fairly smooth at Cairn India, because of its low-cost operating model.
In 2009, in the thick of the downturn, Cairn India raised $1.6 billion through debt to finance its project in Rajasthan. Part of this money was raised in the UK, and part in India.
The Indian lending did not come through without trouble. Cairn had to negotiate hard with the banks, as they were not used to reserve-based lending, that is, lending on the strength of the borrower's oil reserves. "We had to create a legal structure that linked the lending to our participating interest in the project, and secure it that way," he says.
Dealing with foreign exchange market risks is par for the course, as far as Banerjee is concerned, since most of Cairn's earnings are in dollars. "Since part of our expenditure is in rupees, risk comes into play whenever we need to convert dollars into rupees," he says.
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So Cairn is active in currency hedging, mostly in the form of options that protect against future rupee appreciation. "If the rupee appreciates, we are protected, and if it depreciates, we tend to gain because the dollar value goes up," he says.