Rosneft Jousting With Gazprom for Bonds in 2013

By Anna ShiryaevskayaDec 17, 2012 BLOOMBERG

OAO Rosneft (ROSN), negotiating with banks over $30 billion of loans, will vie with Russian gas producer OAO Gazprom for bond investors next year as it seeks to fund a takeover making it the biggest publicly traded oil company.

State-run Rosneft sold $3 billion of bonds last month to help finance a $55 billion takeover of TNK-BP. The yield on the debt due in March 2022 has dropped 18 basis points to 4.02 percent since the sale, compared with 4.08 percent for similar- maturity Gazprom notes, according to data compiled by Bloomberg. Yields for Petroleos Mexicanos, the world’s fourth-largest oil producer, are 3.25 percent for equivalent debt.

Russia’s largest oil company has $7 billion of a bond program left to sell as it seeks to boost oil output through the TNK-BP purchase to more than 4 million barrels a day, surpassing that of Beijing-based PetroChina Co. Investors will be receptive to the company’s bonds after Rosneft raised less than expected in its debut sale, according to Union Investment Privatfonds.

“Rosneft will in 2013 outpace Gazprom (GAZP) as the key Russian borrower since the recent Eurobond deal was well managed,” Sergey Dergachev, a portfolio manager at Privatfonds in Frankfurt, said by e-mail on Dec. 13. “They have issued less than originally planned, conserving some ammunition for 2013.”

Energy Companies

Unlike Rosneft, Gazprom won’t make any “huge” bond deals and will borrow to refinance bonds maturing in 2013 and 2014, Dergachev said.

Gazprom sold $3.8 billion in bonds this year, leading energy companies such as fellow gas producer OAO Novatek to seize on near-record low borrowing costs. Oil and gas accounts for about 50 percent of government budget revenue, while companies in the sector account for about half the weighting of the Micex stock index.

Rosneft said last month it has commitments for $30 billion of loans from international banks. It plans to replace some of the loans with bonds, according to two people with knowledge of the deal. Dow Jones newswires reported Dec. 13 that the company is in talks with overseas energy companies to raise as much as $10 billion in financing for the TNK-BP purchase.

Small Premium

Should Rosneft sell Eurobonds next year, it will probably seek to raise $1 billion to $2 billion, according to Tatiana Dneprovskaya, a fixed income analyst with UralSib Capital in Moscow. The company’s ratio of debt to earnings before interest taxes, depreciation and amortization is approaching 2 and is unlikely to fall significantly in 2013, while Gazprom’s stands at about 1, she said by phone Dec. 13.

Rosneft “is able to service its debt, but in fair pricing it can be reflected in a small premium to Gazprom,” Dneprovskaya said.

Rosneft and Gazprom are both rated Baa1 by Moody’s Investors Service, its third-lowest investment-grade level and the same status as the sovereign.

Gazprom’s press service declined to comment on borrowing before the board approves its investment program later this week. Rosneft may raise funds by various means, Vladimir Tyulin, spokesman for Chief Executive Officer Igor Sechin, said in an e- mailed statement.

“Offers are being received from various organizations now,” Tyulin said. “We will pick the ones that are most acceptable and beneficial for the company and its shareholders.”

The ruble was little changed against the dollar at 30.7275 per dollar by 10:11 a.m. in Moscow. Non-deliverable forwards, which provide a guide to expectations of currency movements, showed the ruble declining to 31.1425 per dollar in three months.

Yield Gap

A gain in Russia’s dollar bonds due in April 2020 cut the yield by seven basis points, or 0.07 percentage point, to 2.42 percent on Dec. 14. The yield on OFZ bonds due in June 2017 fell four basis points to 6.5 percent, taking the weekly decline to 15 basis points. The yield on Russia’s international ruble bond due in March 2018 slipped three basis points to 5.73 percent.

The extra yield investors demand to hold Russian government dollar bonds rather than U.S. Treasuries fell two basis points to 174, according to JPMorgan Chase & Co. indexes. The difference compares with 160 basis points for debt of Mexico and 142 basis points for Brazil.

The cost of protecting Russian debt against non-payment for five years using credit-default swaps fell one basis point to 135, according to data compiled by Bloomberg. The default swaps cost nine basis points more than Turkey, which is rated one level lower at BBB- by Fitch. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.

Large Volumes

Rosneft’s decision to tap the markets with a relatively smaller than expected inaugural bond was part of a strategy to lock in low funding costs and match Gazprom’s curve, Apostolos Bantis, a credit analyst at Commerzbank AG, said by phone on Dec. 13.

“There is a great chance that Rosneft will revisit the capital markets early next year given the large volumes of loans it will have to refinance over the course of the next two years,” he said. “Rosneft is likely to take advantage of any windows of opportunity that arise in 2013.”




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