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Lenders cautious on Nayara Energy as EU sanctions prompt risk review
Senior executives from public sector banks said the implications of restrictions in banking relations may go beyond a halt in processing trade and foreign currency transactions. Lenders would also have to review their approach to bank guarantees and term finance.
The country's largest lender, State Bank of India (SBI), has halted trade and foreign currency transactions for Nayara Energy as a pre-emptive step to avoid adverse action, given its substantial operations in the United States and Europe.
The concern is not limited to settling or processing foreign currency transactions, but extends to the overall impact on the business of oil refiners. 'We have to devise a long-term strategy to navigate the negative impact of US tariffs as it would reduce the overall business of refineries,' said a senior official from a public sector bank.
The US has announced an additional 25 per cent tariff on Indian goods exported to the US, citing India's import of Russian crude oil. The EU has also announced a package of sanctions against Russia, including an import ban on refined petroleum products made from Russian crude oil and originating from any third country. Several companies and entities, including Nayara Energy, are covered by these sanctions. Russian oil major PJSC Rosneft Oil Company holds over 49 per cent in NEL, which operates a single-location oil refinery at Vadinar, Gujarat, with a capacity of 20 million tonnes per annum (MMTPA).
According to a senior public sector banker, lenders will try to find a solution to minimise risks, as Nayara has significant refining capacity that is crucial for meeting the country's energy needs. 'For the sake of one client, banks can't risk their balance sheet,' he added.
One option under consideration is support from lenders without operations in the US and Europe. A similar approach was taken in the past to manage sanctions on Iran, when UCO Bank and IDBI Bank were roped in to process trade transactions. Such a move would require government support and initiative.
In July 2025, CareEdge Ratings reaffirmed its ratings on Nayara's long-term debt ('AA-') and short-term instruments ('A1+'). The ratings reflected a strong operating profile and comfort from healthy throughput and profitability in FY24 and the first nine months of FY25, resulting in an improved financial risk profile supported by a stronger capital structure and robust liquidity.
Nayara's liquidity is backed by cash and cash equivalents of Rs 10,554 crore as on December 31, 2024, and sizable undrawn working capital limits. 'Nayara's cash accruals are expected to have a significant cushion compared to its term debt repayment obligations in the medium term,' the rating agency said, adding that a significant dilution in existing liquidity will be a key monitorable.
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