jointly with other banks the placement of its bonds and Eurobonds, the key indicator of the company’s debt quality is the secured debt-to-EBITDA ratio. Currently, it’s 1.0x, Gazprombank analysts say, and there is a significant margin before it hits the 2.0x level – the red line beyond which the holders of unsecured debt should start to worry, according to Fitch. “At the same time, receiving the first $20-billion tranche of down payment from China’s CNPC improves Rosneft’s financial flexibility in terms of debt refinancing and reduces the need for active placement of bonds,” add Gazprombank analysts.
“The current oil price allows Rosneft to service its debt and even reduce the debt burden,” Gennady Sukhanov, director of the analytical department at TKB BNP Paribas Investment Partners (BNP Paribas was among the 15 foreign banks that provided a syndicated loan to finance Rosneft’s purchase of TNK-BP) told OGE. According to his calculations, after paying the interest and investing in sustainment of the current oil output, Rosneft’s free cash flow in 2013 topped $3 billion. “This money could be used to reduce the debt burden,” says Sukhanov.
He adds that Rosneft’s existing upstream and downstream assets suffice to ensure optimum financial performance. At the same time, the company needs to invest about $18-20 billion each year to maintain current output figures and continue to upgrade its refineries, says Sukhanov. “Involving partners in joint development of new fields will help Rosneft reduce its own investments and boost output,” says Sukhanov.
In his opinion, it is unlikely that Rosneft will resort to placement of ruble bonds or Eurobonds or float its own stock in the near future. In this particular case the cheapest available instrument are commodity loans from China, he says.
Raiffeisenbank analysts disagree and maintain that Rosneft will continue to use debt markets, including the Eurobond market, to optimize its debt portfolio and control debt refinancing, especially if the company has no plans to slash the debt by using down payments on oil supply contracts.
Alexei Debelov, head of the Stock Dept. at the Third Rome investment company, shares a similar view. According to him, if EBITDA falls under pressure of tumbling oil prices or due to any other reason, the cost of borrowing for the company may grow significantly, especially in the Western markets, which may force Rosneft management to switch to state banks’ loans. “Offering its stock to the public won’t improve the company’s financial standing with the government in the seller’s role,” thinks Debelov. Theoretically, Rosneft could change the stock flotation structure in its favor, but it is unlikely that the government needing continued cash injections in the budget would make concessions.
“Rosneft’s available assets and facilities that will be brought on stream over the next few years are sufficient to maintain EBITDA at the current high level and to gradually repay the debt,” says Debelov. In his opinion, expansion of the investment program is unlikely to help boost profits significantly: the economics of new fields is deteriorating, while growing