Ukraine war fallout: Nayara to pay higher interest after NCD downgrade

Lower rating by Care follows concerns over Rosneft's support to the Indian company after Russia invaded Ukraine and western countries imposed sanctions on the Russian entities

Nayara Energy, an affiliate of Russia’s energy major PJSC Rosneft Oil Company, will pay higher interest on its debentures after Care Ratings downgraded its debt instrument following concerns over Rosneft’s support to the Indian company after Russia invaded Ukraine and western countries imposed sanctions on the Russian entities.

A banking source said Nayara informed debenture holders that the rate of interest on its NCDs was changed from 8.75 percent per annum to 9 percent per annum effective March 17th. This was as per the terms in its debenture trust deed dated August 11, 2021 which provided for increase in interest rates on the NCDs in case the downgrading of the credit rating of such NCDs. The company has issued debentures worth Rs 2,600 crore.

Nayara did not reply to an email query.

Interestingly, just before the war broke out, Rosneft and other shareholders had invested $490 million (Rs 3,720 crore) into the company so that the Indian company could reduce its debt. Another tranche of $60 million (Rs 456 crore) was expected before March-end but this fund infusion is delayed due to the sanctions imposed by the Western countries and Russia’s exclusion from the SWIFT, a global fund transfer system.

Soon after Russia invaded Ukraine, Care Ratings revised the ratings on Nayara’s Rs 32,000 crore bank facilities including bank guarantees and debentures considering the impact of the sanctions on the credit profile of Rosneft, which was also reflected by Rosneft’s credit rating downgrades by global credit rating agencies. Though, Care said Nayara is not dependent on operational and financial support from Rosneft in the immediate near term, it warned that there is a moderation in the comfort it derived from the strength of Rosneft being one of the key shareholders of Nayara as well as any long-term support that would have been received from Rosneft.

Rosneft owns 49.14 per cent stake in Nayara, while UCP of Russia and Trafigura, a trading firm, owns a similar stake. The rest of the shares are owned by the small shareholders of Essar Oil. In 2017, the Rosneft led consortium had acquired Essar Oil for $13 billion.

The Indian company is planning to invest in a new petrochemicals complex in Jamnagar at a total investment of Rs 6,000 crore. The company, as on December 31, last year had cash and cash equivalents of around Rs 6,915 crore and has undrawn working capital limits of over Rs 2,000 crore, Care said in a statement on March 17th.

The company had paid debt worth Rs 4,925 crore in the  fiscal ending March this year. Of this, the non-convertible debentures of Rs. 2,400 crore, which was due in July 2021 was refinanced through fresh issue of NCDs of Rs 2,285 crore. Nayara’s total planned capex is around Rs.4,262 crore in the fiscal ending March 2023 – mainly for the polypropylene project while the balance is towards routine and maintenance capital expenditure.