Nayara Energy bondholders stare at mark-to-market losses

CARE Ratings is currently evaluating Nayara Energy’s rating/outlook revision amid global sanctions on Moscow, said three people familiar with the matter. Those bonds were rated AA with stable outlook at the time of issuances. Nayara was formerly Essar Oil.

“As part of the annual exercise, CARE Ratings will initiate rating surveillance of the Company, ” Nayara Energy said in an emailed response to ET. “The Company is not expecting a rating impact due to recent developments since the company is an Indian entity and fully compliant in all perspectives.”

Two sets of Nayara bonds are outstanding worth Rs 2,542 crore, according to analytics firm Primedatabase. Those were sold in December 2020 and August 2021 with five-year and three-year maturities for Rs 257 crore and Rs 2,285 crore.

A large private bank subscribed those papers from the primary market only to down-sell those to large mutual funds, said market sources. It is said to have sold over one-third of it to two mutual funds, and the balance is likely lying on its books.

Another set of papers sold in August 2018 came up for maturity in July last year for Rs 2,400 crore.

CARE rated those bonds with AA citing “Nayara’s flexibility in sourcing of crude, its strong operational profile being India’s second-largest single-location refinery.”

Those bonds offered coupons in the range of 8-8.75 percent. Bonds may have partially changed hands through the illiquid secondary market.

When contacted, Sachin Gupta, CRO at CARE, declined to comment on Individual rating revisions.

“We are assessing three aspects including direct exposure to Russia and Ukraine as well as indirect impact of rising oil price on specific companies,” Gupta had told ET last week on overall rating impact on Indian companies in the aftermath of Ukraine-Russia warfare.

“Based on our assessment we will likely take a call on individual companies, who may face revision of outlook or any other rating action.”

Last week, S&P Global cut Russia’s sovereign credit rating to ‘junk’ category as Western sanctions on Moscow delivered a body blow to the country’s financial health.

Nayara’s parent company Roseneft is likely to face rating consequences following the sovereign downgrade, which in turn will impact its other subsidiaries. Back home, Roseneft holds 49 percent in Nayara Energy while Russian investment group UCP and global oil trader Trafigura are other shareholders. With Trafigura around, it’s unlikely that Nayara would face any difficulty in sourcing crude for its 20-million-tonnes a year refinery or find buyers for its refined products.

Nayara and other refiners enjoy strong refining margins globally these days due to a sharp rebound in fuel demand, leading to strong cash flows. Rising oil prices will also result in inventory gains for refiners this quarter.

Nayara’s refinery has previously dealt with sanctions on Iran successfully by sourcing alternative supplies from far-off places. Iranian crude is best suited to Nayara’s refinery, but after US sanctions choked supply from the Islamic Republic, Nayara sourced its requirements from South America and other places.