Press

Bloomberg 10.02.2014 Fedor Bizikov's commentary

OAO Rosneft is planning Russia’s biggest ruble corporate bond sale this year, targeting the proceeds for debt repayments, while preserving cash from a $270 billion oil deal with China for expanding operations.

Russia’s largest oil company will sell 35 billion rubles ($1 billion) of 10-year bonds on Feb. 13, it said in a Feb. 6 filing. Rosneft’s foreign-currency bonds climbed last week, with the yield on its March 2022 dollar security sliding 20 basis points, compared with a decline of eight basis points for emerging-market oil and gas companies in JPMorgan Chase & Co.’s CEMBI Broad Index.

Rosneft needs to raise funds as it’s scheduled to repay 728 billion rubles this year after buying BP Plc’s Russian joint venture in 2013, according to its website. Igor Sechin, chief executive officer of the Moscow-based producer, said advance payments from accords with companies including China National Petroleum Corp. will be used for strategic projects rather than paying down debt, Interfax reported on Feb. 4.

“Increasing ruble debt now isn’t so bad,” Ilya Mozgovoy, who helps oversee about $1 billion including Rosneft ruble and dollar bonds as the head of asset management at Allianz Investments in Moscow, said by phone on Feb. 7. It would be better for bondholders for Rosneft to use the Chinese money “because credit quality would improve,” though the new issue isn’t bad for market liquidity, he said.

December Sale

President Vladimir Putin said last year the advance payments as part of the 25-year supply accord with CNPC would be about $70 billion. Rosneft, which sold 40 billion rubles of 10- year bonds in December, said that month it had repaid $5.1 billion of $31 billion in loans taken for the TNK-BP deal early.

The securities, redeemable by investors in 2018, yielded 8.1 percent last week, little changed this year.

Vice President for Finance Svyatoslav Slavinskiy said Feb. 4 that the company wasn’t ruling out more ruble borrowing amid “high” rates for dollar bonds. The company plans capital spending of more than 700 billion rubles this year, he said.

Rosneft is building a refinery and a petrochemicals plant in Russia’s Far East, while it’s pursuing offshore projects in the Arctic and Black Sea, and the island of Sakhalin.

Foreign Investors

While foreign investors gained access to the local corporate debt market last month, there’s little sense in buying the securities as they can get similarly rated and better protected ruble Eurobonds, Dmitriy Gritskevich, a money manager at OAO Promsvyazbank in Moscow, said by e-mail on Feb. 7. Rosneft’s press office didn’t respond to e-mailed questions on Feb. 7.

Rosneft is rated Baa1, the third-lowest investment grade, and the same as the sovereign. The yield on the government’s April 2020 dollar bonds fell 16 basis points, or 0.16 percentage point, to 3.73 percent last week. The yield on the notes fell four basis points as of 6:06 p.m. in Moscow.

In addition to the money due to be paid back this year, Rosneft plans repayments of 597 billion rubles in 2015, 274 billion in 2016, 258 billion in 2017 and 786 billion “in 2018 and beyond,” according to the website presentation.

Local banks need bonds from investment-grade issuers for collateral to get cheaper financing at central bank operations, Fedor Bizikov, a money manager at GHP Group in Moscow, said by e-mail on Feb. 7. “The placement will be successful,” he said.