Indian bank HDFC and some foreign banks have stopped offering trade credit for oil imports to Nayara Energy, a Russian-backed refiner, and some suppliers are asking for payment up front to avoid potential problems from sanctions against Moscow, Reuters reported, citing four banks. and industry sources.
Nayara was not sanctioned as part of the international response to Russia’s invasion of Ukraine, but Russian energy giant Rosneft, which owns 49% of the Indian refiner, was.
To avoid needing credit to finance foreign trade, the Mumbai-based company is selling more of its refined fuels in India, two of the sources said.
All sources declined to be named as they are not authorized to speak to the media.
Nayara did not respond to a request for comment. Rosneft did not immediately respond to a request for comment.
Banks suspend payment guarantees
Nayara imports crude oil worth about $1 billion each month on average for its 400,000 barrel-per-day refinery at Vadinar in India’s Gujarat state, the two sources told Reuters.
Indian bank HDFC and international banks such as Citibank, JP Morgan, Deutsche Bank and Japanese financial group Mitsubishi UFJ have stopped opening and confirming letters of credit (LC), which are a standard form of payment guarantee in the oil trade, for Nayara, four sources said.
Citigroup, JP Morgan, Deutsche Bank and Mitsubishi UFJ declined to comment on Monday, while HDFC did not respond to requests for comment.
Kesani Enterprises Co Ltd, a consortium led by Trafigura Group and Russian investment group UCP, is Nayara’s other major shareholder, also with a 49.13% stake.
Kesani has pledged all of its shares in Nayara to Russian bank VTB, from which it took out a loan to fund its acquisition of the Indian refiner in 2017, a Nayara fundraising document released in August showed. last year.
VTB was also sanctioned.
Boost local sales
Both sources said Nayara had increased local sales of its refined fuels this month, which has impacted its revenue as pump prices in India are lower than rates abroad.
Previously, Nayara increased its fuel exports to earn more from strong overseas margins. State-owned refiners that dominate fuel retailing in India have yet to pass on soaring oil prices to customers to help the government fight inflation.
Nayara needs to keep its fuel selling price close to state refiner rates just to be able to sell its products in local markets, the sources added.
Russia’s invasion of Ukraine, which Moscow describes as a “special operation”, has drawn financial sanctions from the United States, Europe and Britain.
While New Delhi has called for an immediate ceasefire in Ukraine, it has refused to explicitly condemn Moscow’s actions. India also abstained from voting on several United Nations resolutions on the invasion.
“Since these LCs are routed through foreign banks in the countries that imposed the sanction, we don’t want to take the risk of spoiling our working relationship, so in some cases we end up taking a more cautious approach,” said an executive. said the director of an Indian public bank.
This source said his bank had stopped issuing letters of credit for Russia-related transactions.
India’s CARE Ratings agency has already placed Nayara’s long-term ratings on “credit watch with negative implications” due to sanctions against Moscow.
“An exception can be made for public companies where the government has full support, but in the case of private companies it is not worth taking the risk,” said a senior executive from another lender. private.