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Rosneft Takes On Massive Debt As US Sanctions Mount

Rosneft

State-owned giant Rosneft now has taken on over $17 billion in debt so far this year, marking 2017 as its biggest borrowing year to date, according to a new report by Bloomberg, as new U.S. sanctions threaten to make it difficult for Russia to secure funds for its massive oil and gas operations as oil prices remain suboptimal for tundra-grade drilling.

Rosneft issued new notes last Friday to raise capital, which raised the company’s total accrued debt this year to more than the figures for 2015 and 2016 combined, Bloomberg data shows. The new 10-year notes will allow the company to refinance existing debt at a manageable rate, the Russian company said.

CEO Igor Sechin said back in June that his company planned to continue mass investment despite the high outstanding debt levels.

“They are issuing now because they can,” Yannick Naud, head of fixed income at Banque Audi in Geneva, told Bloomberg. He has an overweight position on Russian corporate bonds. “They have quite a lot of debt outstanding. It’s important for them to be able to refinance.”

Russia has turned to its domestic capital markets to finance state industrial activities as sanctions prevent the country from accessing European or American lending centers. Borrowing costs for Rosneft have actually declined despite the sanctions due to low returns in developed markets. The coupon rate on Friday’s note issue was 8.35 percent – a full percentage point lower than the rate on similar notes issued last year.

Related: OPEC’s Latest Agreement May Not Stabilize Oil Prices

Most Russian oil companies don’t expect sanctions to be scrapped anytime soon—an assessment espoused by the political elites of the country, too. The sides even seem to have resigned their minds to the current frosty relations.

The Russian economy has swung back to growth this year, with an anticipated 1.7 percent GDP increase this year, and the ruble solidified following a disastrous 2015-2016 period.

By Zainab Calcuttawala for Oilprice.com

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  • Alex on December 06 2017 said:
    Domestic capital markets = shake down the oligarchs. Saudi Arabia had the idea first. When the oil runs out there is always another site to plunder.

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