nayara: Bondholders stare at mark-to-market losses after Nayara Energy downgraded

MUMBAI: Bondholders at Nayara Power, previously Essar Oil, might need to put up with marked-to-market losses after CARE Rankings downgraded its profile on account of Russian possession, market sources mentioned. The score motion comes after the West imposed sanctions on Moscow.

The diploma of marked-to-market losses would fluctuate, relying on bond maturities. The losses could possibly be within the area of 30-40 foundation factors for one notch downgrade, market sources advised ET.

One foundation level is 0.01%.

Two units of Nayara bonds have been excellent price Rs 2,542 crore, in line with Prime Database. These have been bought in December 2020 and August 2021, with five-year and three-year maturities, for Rs 257 crore and Rs 2,285 crore, respectively.

ICICI Prudential Mutual Fund invested Rs 548.67 crore in these bonds by way of half a dozen fund schemes, present knowledge compiled by ValueResearch, an analytics firm. The info was final up to date on February 28, 2022.

Nevertheless, the share of Nayara bonds is unfold within the vary of 0.81-2.96% in every of the person mutual fund plans. A few of these fund plans embody ICICI Prudential Credit score Threat Fund, ICICI Prudential Balanced Benefit Fund, ICICI Prudential Common Financial savings Fund and ICICI Prudential Baby Care Fund – Present Plan.

As a result of decrease share within the general portfolio, internet asset values (NAVs) mustn’t present any important change, sellers mentioned.

“There was no marked-to-market affect on account of the score downgrade on the NAVs because the phrases and situations stipulate a rise of rate of interest payable by 0.25% every year within the occasion of a score downgrade,” mentioned an govt aware of the matter.

ICICI Prudential Mutual Fund declined to remark.

“The revision in long run rankings assigned to the financial institution services and debt devices of Nayara Power (Nayara) considers affect on the credit score profile of Rosneft Oil Firm (Rosneft) on account of ongoing geopolitical occasions, which can be mirrored by Rosneft’s credit standing downgrades by world credit standing businesses,” CARE Rankings mentioned within the score rationale on March 17.

To make sure, Nayara shouldn’t be depending on operational and monetary help from Rosneft within the quick close to time period, the native score firm mentioned.

Russia’s state-run power big Rosneft owns a 49% stake in Nayara Power, with Russian funding group UCP and world oil dealer Trafigura being the opposite shareholders. With Trafigura round, it’s unlikely that Nayara would face any problem in sourcing crude for its 20-million-ton refinery.

A big non-public financial institution had invested in these papers within the main market solely to down-sell them to different institutional buyers, mentioned market sources.

One other set of papers bought in August 2018 got here up for maturity in July final 12 months for Rs 2,400 crore.

Nayara and different refiners are having fun with sturdy refining margins globally nowadays on account of a pointy rebound in gasoline demand, resulting in sturdy money flows. Rising oil costs may also end in stock features for refiners this quarter.

Nayara’s refinery has beforehand handled sanctions on Iran efficiently by sourcing different provides from far-off locations. Iranian crude is greatest suited to Nayara’s refinery, however after US sanctions choked provide from the Islamic Republic, Nayara sourced its necessities from South America and different locations.