Russian-backed Indian refiner cuts ties with major traders and banks

Russian-backed Indian refiner cuts ties with major traders and banks

The result of Western sanctions over Russia’s invasion of Ukraine has scared many global oil traders and banks away from Indian refiner Nayara Energy, a Rosneft affiliate.

Despite Russian calls for “special military action” against Ukraine, the international response has not included sanctions against Nayara per se, but Rosneft has been sanctioned.

Nayara is India’s second-largest private refiner and is owned by Trafigura Group and UCP Investment Group. Its bulk owner is Kesani Enterprises, a consortium led by Trafigura group and UCP investment group.

A source said most trading companies, including Vitol and Glencore, have declined to sell crude directly to Nayara. Other producers in Canada, Latin America, and Europe have also declined.

They declined to identify themselves because they were not authorized to speak to the media.

In western Gujarat state, the Nayara refinery produces 400,000 barrels per day, and its inputs come from state-run Middle Eastern producers, Chinese traders, Russian oil suppliers, as well as local crude oil producers.

Having to hedge for cracks and inventory has become increasingly challenging for the company, according to one source.

According to the second person, companies such as Phillips 66 (PSX.N), Cepsa (CPF.GQ), Occidental Petroleum Corp (OXY.N), Equinor (EQNR.OL), Petrogal, Gunvor, Koch, Respsol, Shell (SHEL.L), Ecopetrol (ECO.CN), Suncor Energy (SU.TO), and TotalEnergies (TTEF.PA) have declined to deal with Nayara.

There have been firms such as Citigroup, Morgan Stanley, BNP Paribas (BNPP.PA), JPMorgan refusing to take on new hedging positions for Nayara, as well as Mitsubishi UFJ Financial Group (8316.T) and Sumitomo Mitsui Financial Group (8316.T) that have refused to take on new hedging positions for Nayara.

A Reuters email seeking comment from trading firms, companies, and banks was not responded to.

Besides working with a variety of suppliers, Nayara has appropriate contracts for buying crude oil from its suppliers and accounts for 8% of India’s refining capacity.

We salvage crudes on a spot basis on competitive terms, in addition to honoring long- and short-term contracts, according to a statement written by the company.

Despite being shunned by some western companies and countries, Nayara has been buying Russian oil at a significant discount. Nayara’s quarterly profit soared to a record 35.6 billion rupees ($446 million) in April-June, thanks to Russian oil intake and improved cracking.

Its operating environment, however, masks concerns.

Reuters reported in April that several foreign banks have stopped offering trade credits for oil imports and Hindi-owned HDFC Bank has stopped it as well.

The long-term ratings for Nayara have also been placed on hold by India’s CARE Ratings as a result of sanctions against Russia. 

Since Western nations began imposing sanctions on Russia, some of Nayara’s top executives have left the company. No explanation has been provided for the departures by the company.

Nayara Energy, an Indian refiner backed by Russia, posts record profits

As a result of a higher intake of discounted Russian fuel and oil exports, India’s Nayara Energy recorded a record quarterly profit in April-June. Nayara Energy is a majority-owned affiliate of Russian oil giant Rosneft MM>.

On Friday, Nayara announced in a stock exchange filing that it posted a net profit of 34.65 billion rupees (447.5 million).

The consortium of Trafigura Group and UCP Investment Group (Russian-owned UCP Investment Group) owns 49.13% of Nayara, while Rosneft has a 49.13% stake.

In the entire fiscal year to March 31, 2022, the private refiner posted a profit of 10.30 billion rupees.

After some western countries and companies shunned Russian oil due to its invasion of Ukraine, refineries in India are now buying Russian oil in large quantities.

A key Indian buyer of Russian oil has emerged as Nayara and private refiner Reliance Industries (RELI.NS).

As a result of selling refined fuels below market rates in local markets, state retailers posted a net loss in April-June.

A Nayara refinery in Gujarat state operates 400,000 barrels per day, while Rosneft, a Russian energy giant, has been sanctioned in response to Russia’s special operations in Ukraine.

The Indian company has lost some top management officials since Western sanctions were imposed against Russia.

Krzysztof Zielinski, Rosneft’s representative, resigned from Nayara’s board on Friday, and Andrey Bogatenkov was appointed.

On Wednesday, Nayara announced the resignation of the chief financial officer Anup Vikal

It appoints Sachin Gupta as the replacement for Jonathan Kollek, a Kesani Enterprises nominee.

Gupta is Trafigura India’s chief executive and Bogatenkov is Rosneft’s VP for commerce and logistics.

Nayara’s suppliers are requesting upfront payment to avoid problems resulting from western sanctions because some foreign banks and India’s HDFC Bank are giving trade credit to the company. 

A credit watch with negative implications has also been placed on Nayara’s long-term rating by CARE Ratings in India.

Several banks have stopped financing Rosneft’s Nayara refinery, according to recent sources.

In response to Western sanctions against Moscow, some suppliers are asking for upfront payment to avoid potential problems, four banking and industry sources said, including HDFC Bank and foreign banks, which have stopped offering trade credit to Nayara Energy, a Russian-backed refiner.

In response to Russia’s invasion of Ukraine, Nayara has not been sanctioned, but Rosneft, which owns 49% of it, has.

It is selling more of its refined fuels in India to avoid needing credit for overseas trade, two sources said.

Due to their lack of media authorization, all sources declined to be named.

An inquiry to Nayara went unanswered. Responses to comments from Rosneft were not immediate.

Both sources told Reuters Nayara imports crude oil worth about $1 billion on average every month for its Gujarat refinery, which processes about 400,000 barrels per day.

The Indian bank HDFC Bank (HDBK.NS) and several international banks have stopped opening and confirming Letters of Credit (LCs), an important form of payment guarantee in the oil trade, for Nayara, according to four sources. They include Citibank (C.N), JP Morgan (JPM.N), Deutsche Bank (DBKGn.DE), and Mitsubishi UFJ Financial Group (83106.T).

HDFC did not respond to requests for comment on Monday, while Citigroup, Deutsche Bank, JP Morgan, and Mitsubishi UFJ declined to do so.

In addition to Trafigura Group and UCP Investment Group, Kesani Enterprises Co Ltd holds 49.13% of Nayara.

According to a fundraising document Nayara issued in August last year, Kesani held all of its shares in Nayara before taking a loan from Russian bank VTB to buy the Indian refiner.

Also sanctioned is VTB.

In India, pump prices for refined fuels are below overseas rates, which has affected Nayara’s revenue, the sources said.

As a result of robust overseas margins, Nayara had previously increased its fuel exports. To help the government tackle inflation, state-owned refineries haven’t yet passed on the rise in oil prices to consumers.

To sell its products in local markets, Nayara must keep its fuel sale prices close to those of state refineries.

Financial sanctions have been imposed by the United States, Europe, and Britain in response to Russia’s invasion of Ukraine.

Even though it has called for a ceasefire now, New Delhi has yet to explicitly condemn the actions of Moscow. Several UN resolutions on the invasion have also been abstained from by India. 

It is important to us that we avoid ruining our working relationships by routing these LCs via overseas banks in the countries that have placed sanctions, so we may take a more cautious approach in some cases, a state-owned Indian bank executive director said.

LCs for transactions involving Russia have been stopped by this bank.

According to India’s CARE Ratings, Moscow’s sanctions have already impacted Nayara’s long-term ratings.

Taking the risk is not worth it for private companies, according to one senior executive at another private lender, but it may be worth it for state-run companies.

CARE Ratings puts a Russian-linked Indian refinery on credit watch

Due to sanctions against Moscow for its invasion of Ukraine, India’s CARE Ratings put Nayara Energy’s long-term credit ratings on ‘credit watch with negative implications.

The Russian oil giant Rosneft owns 49.13% of Nayara, with Trafigura and United Capital Partners each owning a similar stake.

The Bank of America Research and Evaluation agency, or CARE, has downgraded Nayara’s ratings for a 171.5 billion rupee bank loan and a 25.42 billion rupee non-convertible debenture.

A fleet of about 6,500 retail fuel stations in India is operated by Nayara at its 400,000 barrel-per-day Vadinar refinery.

As a result of its connections with Russian entities, Nayara may have difficulty finding funding, according to Reuters last week. 

If the war negatively impacts Nayara’s shareholders or the Indian company, CARE Ratings will take action on the rating.

As Nayara buys oil from Middle Eastern, Egyptian, and Latin American companies and exports refined fuels to the Netherlands and the Far East, it is not affected by western sanctions against Russia, according to the rating agency.

There is considerable uncertainty over the exact ramifications of the war situation on Nayara’s shareholders, given the severity of the war situation and the subsequent global backlash through sanctions against Russia.

Following his placement on the U.S. sanctions list, Didier Casimiro resigned from Nayara’s board in 2020.

edited and proofread by nikita sharma