Sanctions May Impact Russian Oil Companies' Debt Securities Placements

conference in St. Petersburg in early April, Gazprom Neft general director Alexander Dyukov replied that the company had already attracted the funds for this year back in 2013. The average cost of Gazprom Neft borrowing currently stands at 3.5 percent APR, which is not much, says Dyukov. “We believe that Western banks are unlikely to refuse to work with us, but in any case we have blazed the trail to Asian lenders, too, so we can get the financing there. There is also domestic market, where the government can provide support. We remember 2008, when the government had supported many companies,” the top manager explained. According to Dyukov, the financial situation could lead to a bit higher cost of borrowing. “If it raises to 3.8 percent instead of 3.5 percent, we will survive, all our projects have internal rate of return above 15 percent,” he added.

“Taking into account our investors’ lingering concerns about developments in Ukraine and, consequently, possibility of new sanctions against Russia, the window for Eurobond issues would open no earlier than the end of May holidays,” says Vedernikov. By early summer, deferred demand that will have accumulated by then, as well as the need to implement plans to attract funds, will determine the number of Eurobond placements by Russian oil and gas blue chip companies, he adds.

“Notably, most of the losses incurred by Russian Eurobonds after the Federation Council’s March 1 approval of President Vladimir Putin’s request to send troops to Ukraine [in case of necessity] have been recovered. For instance, after this decision Russian Eurobonds in U.S. dollars with the April 4, 2042 maturity date plunged from $98.86 to $94.17 in a single day, reached a minimum of $89.48 by March 14, and rebounded by April 1, returning to $98.85. Similar trend was observed with oil and gas companies’ Eurobonds,” says Nord-Capital senior analyst Maxim Zaitsev. Generally, from the beginning of 2014 Russian Eurobonds have not grown significantly compared to last year’s figures, when the situation was exacerbated by the correction in Russia’s debt market, says the expert. “Sure, higher borrowing costs may somewhat dampen the issuers’ appetite for further placements, but I don’t expect considerable slashes in emission of Russian Eurobonds,” believes Zaitsev.

According to Kirdan, local market could solve the problems of debt refinancing, but this will strongly depend on the policy of Russia’s Central Bank: the demand for new debt can grow only if the Central Bank scales up the levels of money supply to the banking system. This may be done by reducing the base rate to the previous level or by means of significant expansion of REPO framework, or launch of some new tools like lending secured by investment projects, or even the long-forgotten unsecured loans.

“I doubt that banks would voluntarily step up activity of the local bond market without securing the Central Bank’s strong support,” says Kirdan. It’s always worth remembering that refinancing can be done in several ways – either through the public market or through