Sanctions on Russia might lead to impairment losses for ONGC, others: Moody’s

Indian firms’ worth of investments in Russia’s oil and fuel fields could possibly be impaired as import bans and worldwide sanctions might constraint future money circulation producing capability, Moody’s Investors Service mentioned Thursday.

Oil and Natural Gas Corporation (ONGC), Oil India Ltd (OIL), Indian Oil Corporation (IOC) and Bharat Petroleum Corporation Ltd (BPCL) have invested in upstream oil and fuel property in Russia.

“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,” the ranking company mentioned in a be aware.

While multinationals like BP and Shell have introduced withdrawal from Russia after its invasion of Ukraine, Indian firms haven’t introduced an exit from their Russian investments.

This, Moody’s mentioned, will result in a restricted impairment within the worth of investments instantly, particularly underneath the present oil value surroundings.

Indian companies have invested USD 16 billion in Russian property such because the Sakhalin-1 oil and fuel subject within the far east.

Moody’s mentioned they might face hurdles in receiving dividend funds however the impression on earnings is not going to be vital.

“If an growing variety of Russian banks are excluded from the primary monetary messaging SWIFT system, Indian firms may not have the ability to obtain future dividends from their upstream investments in Russia.

“However, even in a situation where the companies cannot access these cash flows, the impact on their financial profiles will not be significant,” it mentioned.

For most firms, dividend earnings from the Russian investments constitutes lower than 5-6 per cent of consolidated EBITDA.

The US ban on the import of Russian oil and different worldwide sanctions on Russia might constrain the longer term money circulation producing capability of those property. Such developments would decrease the worth of the Indian firms’ investments and can seemingly lead to impairment losses.

For IOC and BPCL, the Russian property accounted for lower than 5 per cent of their complete asset bases as of December 31, 2021. The two companies obtain earnings contributions from these property within the type of dividends.

For ONGC, its Russian property accounted for round 12 per cent and 20 per cent of its manufacturing volumes and proved reserves, respectively, for FY2021.

For OIL, these proportions stood at round 31 per cent and 24 per cent, respectively.

For ONGC, the Russian property contributed to round 11 per cent of its consolidated EBITDA for FY2021. Around 8 per cent of this contribution got here from the Sakhalin-1 mission whereas the steadiness was within the type of dividends by CJSC Vankorneft.

“Even if ONGC loses its entire earnings contribution from the Russian assets, the impact can be accommodated into ONGC’s credit profile,” Moody’s mentioned.

The same scenario for IOC and BPCL wouldn’t have any materials impression on their monetary profiles as dividend earnings from the Russian investments accounted for simply round 2-4 per cent of their consolidated EBITDA for the fiscal ended March 2021 (FY2021).