Moody’s Investor Service said on Thursday that international sanctions imposed on Russia would result in losses for companies investing heavily in Russian oil and gas fields and their future cash flow generation capacity.
Indian companies such as ONGC, Oil India Ltd, Indian Oil Corporation and Bharat Petroleum Corporation Ltd (BPCL) have invested heavily in Russia’s upstream oil and gas assets. Moody’s has said in a note that the cash earnings of these assets will be hit hard due to the import ban on Russia and international sanctions. Due to which these companies of India will also have to face an impairment loss on their investment.
Let us inform that after Russia attacked Ukraine, multinational companies like BP and Shell have announced to withdraw their business from Russia, but Indian companies have not announced any withdrawal of their investment from Russia.
Moody’s says that due to this trend of Indian companies, there will be limited loss in investment value for the time being as crude oil prices remain at higher levels in the current circumstances. Significantly, Indian companies have invested 16 billion US dollars in Russia’s oil and gas sector. Indian companies have invested heavily in Sakhalin One Oil and Gas, located in the far east of Russia.
Moody’s says these companies may face hurdles in receiving dividend payments, but their earnings will not be significantly impacted. If more and more Russian banks are excluded from the SWIFT financial messaging system, Indian companies may find it difficult to get further dividends on their upstream investments made in Russia.
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Moody’s has also said in its note that even if Indian companies do not get dividend-like cash flow, their financial profile will not be affected much as the share of dividends from investments made in Russia in the consolidated EBITDA of most companies is 5 Less than -6 per cent. However, due to the US ban on Russian oil and the third international sanctions imposed on Russia, the cash flow generation capacity of the Russian oil and gas asset may be under pressure. In such a situation, the value of investments of Indian companies will decrease and its effect will come in the form of impairment losses.
It may also be noted that as of December 31, 2021, the share of Russian assets in the total asset base of IOC and BPCL was less than 5 per cent. At the same time, the share of Russian assets in ONGC’s total asset base is around 12-20 per cent. The share of Russian assets in ONGC’s consolidation EBITDA was around 11 per cent in FY21.
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