Ukraine war, economic uncertainty delays Nayara Energy stake sale plan

The economic uncertainty caused by the near three-month old war in Ukraine has pushed the plans by Italy’s Genera group to purchase Amsterdam-based Trafigura’s 24.5 per cent stake in Nayara Energy. 

In November last year, Genera sought permission from the Competition Commission of India to acquire Trafigura’s stake for an undisclosed amount. But the subsequent war in Ukraine has changed Genera group’s plans, said a banker close to the development.

“With the war, the chances of a Western company buying a stake in Nayara looks difficult. They may have to look for Indian equity partners,” said a banker. 

Russia’s Rosneft Oil Company, which owns 49.14 per cent stake in Nayara, is facing economic sanctions from western countries. Russia’s UCP, an investment firm, and Trafiguru owned each owned a 24.5 per cent stake in the firm while a minor stake was owned by small shareholders of erstwhile Essar Oil. In 2017, the Rosneft-led consortium had acquired Essar Oil from the Ruia family for $13 billion in the biggest foreign direct investment into India and changed its branding to Nayara.

When contacted, a spokesperson for Trafigura said that the company has decided to sell its equity investment in Tendril Ventures (Nayara Energy). "We have no further update on the sale process at this time," the spokesperson said. 

Bankers said the war has also increased the cost of funds for Nayara Energy as it is now paying a higher interest on its debentures after the rating firm 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.

Nayara informed debenture holders last month that it will pay a higher rate of interest on its NCDs to 9 per cent per annum from March 17. 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.

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 on Russia.

Bankers said Nayara Energy is a good asset considering it owns India's second-largest single location refinery – at Vadinar, Gujarat – having a capacity of 20 MMTPA (equivalent to 140 million barrels) with its own power and electricity generation unit. The company also has a presence in oil retailing, with 6,496 operational retail outlets in various parts of India and plans to expand the number of operational retail outlets to 7,300 by December this year.