Russia-backed Indian refiner struggling for trade credit: Report

India’s HDFC Bank and some foreign banks have stopped offering trade credit for oil imports to Nayara Energy, a Russian-backed refiner, and some suppliers are seeking payment upfront to avoid potential problems resulting from Western sanctions against Moscow, Reuters has reported, citing four banking and industry sources.

Nayara has not been sanctioned as part of the international response to Russia’s invasion of Ukraine, but Russian energy giant Rosneft, which owns 49 percent of the Indian refiner, has been.

To avoid the need for credit to fund overseas trade, the Mumbai-headquartered company is selling more of its refined fuels in India, two of the sources said.

All of the sources declined to be named because they are not authorised 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 halt payment guarantees

Nayara imports crude oil worth about $1bn every month on average for its 400,000 barrels per day Vadinar refinery in India’s Gujarat state, the two sources told Reuters.

India’s HDFC Bank and international banks such as Citibank, JP Morgan, Deutsche Bank and Japan’s Mitsubishi UFJ Financial Group have stopped opening and confirming Letters of Credit (LCs), 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 Russia’s UCP Investment Group, is the other major stakeholder in Nayara, also with a 49.13 percent stake.

Kesani has pledged all of its shares in Nayara to Russian bank VTB, from which it took a loan to fund its acquisition of the Indian refiner in 2017, a fundraising document Nayara issued in August last year showed.

VTB has also been sanctioned.

Boosting local sales

The two sources said Nayara has this month boosted local sales of its refined fuels, taking a hit on its revenue as pump prices in India are below overseas rates.

Previously Nayara had raised its fuel exports to earn more from robust overseas margins. State refiners that dominate Indian fuel retailing have not yet passed on the spike in oil prices to customers to help the government tackle inflation.

Nayara has to keep its fuel sale price close to the state refiners’ 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 prompted 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 has also abstained from voting on multiple United Nations resolutions on the invasion.

“Since these LCs are routed via overseas banks in the countries that have placed the sanction, we don’t want to take the chance of spoiling our working relationships, so in some cases, we end up taking a more cautious approach,” an executive director at an Indian state-owned bank said.

This source said his bank has stopped issuing LCs for transactions that have links to Russia.

India’s CARE Ratings has already placed the long-term ratings of Nayara on “credit watch with negative implications” due to sanctions against Moscow.

“One may make an exception for state-run companies where there is complete government backing, but in the case of private companies it is not worth taking the risk,” a senior executive at another private lender said.