Rosneft Rushes to Repay Loans

By Ivan Shlygin, April 19, 2014

How heavy is Rosneft’s debt burden resulting from last year’s acquisition of TNK-BP? How long will it take Russia’s largest oil company to pay off the gigantic loans? Would Rosneft be able to service them without additional financial instruments? Opinions of the financial experts interviewed by OGE differ. 

Rosneft’s acquisition of TNK-BP for 1.767 trillion rubles continues to generate interest among investors, analysts and journalists. The main issue is how Rosneft is going to repay its net debt of 1.86 trillion rubles as of the end of 2013. 

In this context it is interesting to hear the comments of Rosneft head Igor Sechin, who, speaking about his company’s performance results in 2013 as per IFRS, said that Rosneft would target to reduce the net debt-to-EBITDA ratio from the current 1.96x to 1.3x. In order to reach this goal, Sechin added, Rosneft would use the down payments for oil supply contracts to finance strategic projects rather than to pay off debt. 

Deal Structure 

Rosneft’s acquisition of TNK-BP from its former owners, BP and AAR consortium (established by Alfa-Group, Access Industries and Renova) for $61 billion last March was the largest deal in the global M&A market in 2013, followed by the merger of Glencore International and Xstrata that bore a price tag of $45.5 billion.

The British major sold its 50-percent stake in TNK-BP to Rosneft for $16.65 billion and 12.84 percent of its stock. Rosneft dished out an additional $27.73 billion to buy the remaining, AAR-owned half of the company. Former owners also retained the right to dividends – BP eventually received around $400 million in dividend payments, AAR – about $700 million. 

To finance the deal, Rosneft raised two- and five-year loans from a group of foreign banks (Bank of America Merrill Lynch, Barclays Bank, BNP Paribas, BTMU, Citibank, Credit Agricole, ING Bank, Intesa Sanpaolo Banking Group, JP Morgan, Mizuho Corporate Bank, Natixis, Nordea Bank, SMBC, Societe Generale and Unicredit Bank) totaling about $31 billion. Rosneft secured an additional $10 billion through long-term trade finance deals with the world’s largest oil traders, Glencore and Vitol, and $3 billion more via the placement of Eurobonds. It also issued bonds worth 110 billion rubles – the top issue by a Russian company in 2013. Its debt strategy rests on refinancing 70 percent of loans by bonds and replacing short-term loans with longer, five- to 10-year loans. On Feb. 18, as part of this strategy, Rosneft placed 10-year bonds for 35 billion rubles on the Moscow Stock Exchange.

Last December, Rosneft said it had repaid ahead of schedule the $5.1 billion loan raised to fund the acquisition of TNK-BP. It finished the year repaying 341 billion rubles of the total corporate debt. Rosneft’s largest debt payments, topping 700 billion rubles per annum, are scheduled for 2014 and 2018. The third-largest payment, which is slightly less than 600 billion rubles, is pending in 2015.

According to the analysts of Gazprombank, the bank that in 2013 loaned 184.4 billion rubles to Rosneft and organized