Business News/ Economy / Russia sanctions to have mixed credit implications for Indian OMCs: Moody's

Sanctions on Russia and high oil prices in the wake of Ukraine war will have mixed credit implications for India's oil and gas sector, according to a report by ratings agency Moody's.

Indian oil companies' value of upstream investments in Russia could be impaired but impact on credit profiles will be manageable, Moody's said on Thursday.

Various Indian companies including Indian Oil Corp, the country's top refiner, has bought 3 million barrels of Russian Urals and 2 million barrels of West African oil through a tender for May loading.

This is the second purchase of Urals by IOC since Russia invaded Ukraine on February 24. It bought similar volumes of Urals from Vitol earlier this month for delivery in May.

The invasion has prompted a barrage of sanctions that have limited Russia's ability to do business in major currencies and hit several of its banks and state-owned enterprises.

India, the world's third-biggest consumer and importer of oil has also not banned Russian oil imports, unlike several Western countries.

"Import bans and international sanctions on Russia may constrain the future cash flow-generating capacity of these assets and lead to impairment losses for the companies," it said.

"However, the Indian companies have not announced an exit from their Russian investments and therefore an immediate impairment in the value of investments will be limited, especially under the current oil price environment," it added.

On high oil prices, Moody's said will weaken refiners' profitability and increase working capital needs.

State-owned refining and marketing companies IOCL, BPCL and HPCL might not be able to fully pass on the recent spike in crude oil prices to the final consumer and as a result, profitability will weaken.

"Higher crude oil prices also increase refiners' working capital requirements resulting in incremental borrowings and weaker credit metrics," Moody's added.

"For countries such as India, which imports around 85% of its crude oil requirements, this situation will necessitate further investments to develop alternate energy sources to meet its energy requirements, intensifying carbon transition risks."

India's top fuel retailers IOC, BPCL and HPCL have together lost around $2.25 billion ( 19,000 crore) in revenue in March by keeping petrol and diesel prices unchanged despite a sharp rise in crude oil prices, Moody's said.

Petrol and diesel prices remained unchanged between November and March despite prices of crude oil (raw material for producing fuel) averaging around $111 per barrel in the first three weeks of March compared to around $82 in early November.

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Updated: 24 Mar 2022, 08:59 PM IST
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