Rosneft, Russia’s state-owned oil company, is set to place 400 billion rubles ($US6.1 billion) worth of bonds to finance “the company’s projects and production plan”, according to the firm. But there are fears that the deal could set off another ruble rout.
In setting up the deal the company felt compelled to clarify that it would not use the money it raises in the bond sale for the “purchase of foreign currencies”. The commitment comes after a similar bond issue in December was blamed for the collapse in the ruble that month, with the currency briefly touching all-time-lows of 80 rubles to the dollar and 100 rubles to the euro.
At the time, former Russian finance minister Alexei Kudrin pointed the finger at Rosneft for spooking currency markets on Twitter after the company received what was widely seen as
back-door refinancing by the Russian central bank. And Rosneft hit straight back, blaming the central bank for “pushing Russia towards recession.”
However, there are grounds to doubt the companies assurances this time as well. Rosneft is due to shell out $US19.5 billion in debt repayments this year followed by $US8 billion a year in 2016 and 2017. With international sanctions restricting the firm’s access to foreign debt markets and falling oil prices lowering its foreign currency revenues, that bill is becoming ever more expensive.
Given the large state interest in the company, the pressure to ensure its health will be intense. This makes it all the more likely that the company will seek to use the same unorthodox financing methods it reportedly enjoyed in December, whereby the country’s troubled banking sector buys up the debt in order to use it as collateral with the central bank in exchange for rubles.
However, this is not a free lunch. As Alexey Bulgakov, a fixed-income analyst at Sberbank CIB, told Bloomberg Rosneft is effectively replacing what was relatively cheap foreign debt financing with much more expensive local debt.
This could “significantly worsens the company’s debt structure”, Bulgakov said.
The ruble was down over 3% against the dollar on Monday at the time of writing.
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