Mysterious buyers of massive Rosneft bond likely to be state banks

By bne IntelliNews December 12, 2014

bne IntelliNews -


Russia's largest oil company, state-owned Rosneft, placed RUB625bn ($11bn) of bonds on December 11, apparently with private buyers, leaving the market baffled as to their identity.

Experts argued that the bond was purchased by state banks, in particular Russia's second largest bank VTB, which will use them as collateral for refinancing loans from Russia's central bank.

Rosneft has urgent need of cash, because it has to pay down large debts in coming weeks. The company is facing a collapse both in the price of oil and in the value of the ruble,  while international capital markets are closed to it because of Western sanctions on Russia.

Rosneft has to pay down $6.9bn of foreign debt on December 21, $7.3bn on February 13, 2015, and must repay up to $29.7bn by the end of financial year 2015, debts arising from the purchase of oil major TNK-BP in March 2013. It had previously said that it would replace some foreign debt with ruble borrowings.

"We believe that this move could be part of Rosneft’s plans to refinance its debt," said Alfa Bank's Alexander Kornilov in a research note. "The company has fallen victim to ruble devaluation that is putting a heavy drag on earnings via enormous foreign exchange losses, which appears to jeopardise its profitability when coupled with the drop in oil prices," writes Kornilov. Oil prices have fallen from $110 per barrel in June to under $60 per barrel currently.

The bond issue, says some analysts, may have been part of a complex transaction for Rosneft to acquire hard currency cash without putting further pressure on the ruble. The state bank may pledge the bonds acquired as security for dollar liquidity from the Central Bank, which would then be provided to Rosneft as a currency swap.

Apparently confirming this version, the central bank on December 11 announced a three-year auction for RUB700bn to be held on December 15.

Other analysts argue that Rosneft has sufficient hard currency funds to pay down its debts. Rosneft currently has $16bn in cash, and is expecting significant prepayment from China on future oil supplies, which could be as much as $15bn in the first quarter of 2015, say analysts.

The funds from the bonds could thus be needed to finance operating costs, in the face of plummeting oil prices and closure of international financial markets because of Western sanctions.

Rosneft also hopes to get funds from Russia's sovereign fund, the National Welfare Fund, for major investment projects, in particular in Russia's Far East. Sources from the National Welfare Fund denied it had participated in the December 11 ruble bond issue.

The government is also looking to privatise a 19.5% stake in Rosneft in the coming months, reducing the state's stake to 50%. Rosneft CEO Igor Sechin says that he wants over $8.12 per share, which is double the current share price, meaning that the government is looking for a strategic investor: potentially Indian or Chinese companies who are already partnered with Rosneft. Russian oil company Surgutneftegaz, which has a cashpile of an estimated $50bn, may also purchase a stake in Rosneft, according to experts.


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