Rosneft Gets Central Bank Help Refinancing $7 Billion Loan

Russia’s most-indebted company slapped by sanctions, OAO Rosneft, raised $10.8 billion on the local market this week in an operation financed by the central bank.

The deal comes as Russian corporations struggle with foreign-currency debt after U.S. and European Union sanctions curbed access to international capital markets and the country’s economy heads for recession next year. Rosneft, which faces a $7 billion loan redemption on Dec. 21, obtained the central bank-backed deal after delays by the government over its request to tap the country’s National Wellbeing Fund.

Rosneft sold 625 billion rubles ($10.8 billion) of six- and 10-year notes yesterday at yields below those on equivalent Russian government securities. The Bank of Russia cleared the securities to serve as collateral in an unprecedented 700 billion ruble liquidity auction planned for Dec. 15, meaning bondholders will have access to central bank cash at a time money-market rates are at a five-year high.

“Cut off from international refinancing, the company has to cover its refinancing gap by indirectly borrowing from the central bank,” Sberbank CIB analyst Alexey Bulgakov said by e-mail from Moscow today.

The bond sale, equal to about 70 percent of companies’ total domestic issuance this year, is similar to what Russian commercial banks did during the global cash squeeze in 2009, according to Vladimir Osakovskiy from Bank of America Corp. Five years ago banks sold securities to each other to have more collateral at central bank liquidity operations, he said.

Last Lender

“The role of the central bank as the lender of last resort is increasing again,” Osakovskiy, the bank’s chief economist in Moscow, said by phone today. “Given that there are no other lenders of the same scale, Bank of Russia basically remains the only source of funding.”

Rosneft said it placed 225 billion rubles of bonds with an initial coupon of 11.9 percent and 400 billion rubles of debt with a floating coupon. The Russian government’s 10-year local-currency note yields 12.99 percent, the most in five years. The rate on Rosneft’s dollar securities due March 2022 increased 23 basis points 9.83 percent as of 6:05 p.m. in Moscow. The company’s shares gained 1.3 percent to 210.75 rubles, paring their drop in the week to 5 percent.

This year’s five interest-rate increases by Bank of Russia Governor Elvira Nabiullina, the ruble’s 43 percent drop against the dollar and no access to foreign capital limit refinancing options for Russia’s sanctioned companies.

Helping Hand

Rosneft, the world’s biggest publicly traded crude producer by volume, has about $10.2 billion of debt coming due in the fourth quarter, including a $6.88 billion loan from foreign banks on Dec. 21, as well as $19.5 billion in 2015. The company has about $20 billion in cash and equivalents, according to its third-quarter earnings report.

The Finance Ministry said the $80 billion Wellbeing Fund it oversees didn’t participate in Rosneft’s bond sale, according to an e-mailed response to questions by its press department. Rosneft’s press-service declined to comment on the sale.

The government agreed to inject 40 billion rubles from the fund into OAO Gazprombank’s preferred shares, according to a decree last month. VTB Group, which got a capital boost this year by converting a more than 200 billion-ruble subordinated loan from the government into preferred shares, requested 250 billion rubles of additional support from the fund, Finance Minister Anton Siluanov said in November.

Quick Clearance

While Rosneft is ready to use as much as 2 trillion rubles from the Wellbeing Fund, the company will cope if there’s no positive decision, Chief Executive Officer Igor Sechin said on Nov. 12, according to Interfax.

The central bank’s one-day clearance of Rosneft’s notes for collateral use was unusually quick, as it can often take several months before corporate bonds are added to the list of securities that can be pledged at liquidity auctions, Yulia Safarbakova, a senior fixed-income analyst at BCS Financial Group in Moscow, said by e-mail today.

The central bank monitors and analyzes the securities markets on a daily basis to make additions to the collateral list, the Bank of Russia press service said by e-mail today.

The bond sales “look like a bridge-loan from banks to Rosneft,” Dmitriy Gritskevich, an analyst at Promsvyazbank in Moscow, said by e-mail today. “The bonds may now be used as collateral to refinance with the central bank.”

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