Why sanctions won't tip $15 billion of Russian debt payments
Russian companies facing $14.9 billion of debt payments this year will probably weather U.S. sanctions as OAO Rosneft rakes in oil proceeds from China and the central bank tackles a cash shortage among lenders.
The availability of alternatives will help President Vladimir Putin shrug off the most punitive U.S. sanctions yet as oil producer Rosneft, which has a $12.7 billion loan payment in December, can rely on advanced funding from long-term Chinese crude contracts to cover debt, according to ZAO Raiffeisenbank and BCS Financial Group. OAO Gazprombank, with $2.2 billion due this year, can draw on central bank cash, BCS said.
The sanctions limit the ability of Rosneft, Gazprombank, OAO Novatek and Vnesheconombank to raise funds maturing in more than 90 days, compared with tenors of as long as 4.5 years for their dollar debt due this year. While the measures pummeled Russian assets yesterday, with losses deepening after Ukraine said rebels shot down a Malaysian passenger plane, Union Investment Privatfonds predicts the companies will find alternatives to meet their obligations.
"It's not tremendously serious," Sergey Dergachev, who helps oversee about $10 billion in emerging-market debt at Union Investment in Frankfurt, said by e-mail yesterday. "Russian names can tap the euro market. I do expect more funding to come from central bank and also from Chinese banks going forward."
The Micex Index of equities dropped to a seven-week low yesterday and the ruble tumbled the most since Russia's intervention in Crimea. Russian stocks in the U.S. extended losses after the Malaysian jet carrying 295 people crashed near Ukraine's border with Russia. The government in Kiev blamed pro- Russian rebels, while the separatists denied the accusation.
Rosneft's dollar bonds due in March 2022 plunged the most on record, sending yields jumping 81 basis points to 6.14 percent yesterday. The securities posted the biggest losses yesterday among all emerging-market bonds in the Bloomberg USD Emerging Market Composite Bond Index.
Putin, in Brazil, said the penalties will only have a "boomerang effect" that will hurt the U.S.'s own interests, even as Andrey Kostin, the head of state-run lender VTB Group, warned the measures may tip the economy into recession, lead to the "disintegration" of financing and turn Russia into an outcast of global capitalism.
Despite the knee-jerk reaction, Rosneft and gas producer Novatek's short-term refinancing risks are "low and, considering the active cooperation of both companies with China, the Asian markets may provide a new source of funding longer term," Moscow-based BCS analysts, led by Leonid Ignatyev, said in an e-mailed note yesterday.
The Rosneft loan due in December was part of a $31 billion financing package that the company borrowed for its acquisition of TNK-BP, finalized in 2013 and the largest-ever acquisition financing for a Russian company. Lenders for the facility included Bank of America Corp., Barclays Plc, BNP Paribas SA, Citigroup Inc. and JPMorgan Chase & Co.
"For Rosneft as a stand-alone credit, the fact that it cannot get funding from the U.S. does not cause a significant negative impact," Aaron Grehan, a London-based fund manager who helps oversee $4.5 billion in emerging-market debt including Rosneft bonds at Aviva Investors Ltd., said by e-mail today.
The state-run oil producer is scheduled to receive $63 billion of advances under long-term crude-supply contracts from 2014 to 2018, mostly from Chinese clients, Andrey Polischuk, an energy analyst at Raiffeisenbank in Moscow, said by phone yesterday. That covers almost all of Rosneft's $65 billion in debt, he said.
"Rosneft would never have received such generous funding without China," Polischuk said. "It's an obvious dependence. There are few other alternatives."
Sanctions will put more pressure on the central bank to bridge a cash shortage that's gripped the nation's lenders this year as foreign investors dumped Russian assets, deterred by the escalating crisis in Ukraine, which also choked off borrowers' access to global debt markets.
The world's largest energy exporter has $477 billion of foreign-currency and gold reserves to draw on, and policy makers last month added 2 trillion rubles ($57 billion) to a program aimed at tackling a cash shortage among banks. Central bank tools are adequate to support individual financial institutions, the regulator said yesterday.
Gazprombank, Russia's third-largest lender, has a $1 billion bond due in December and a $1.2 billion loan maturing in September, according to data compiled by Bloomberg.
The yield on the notes due Dec. 15 jumped 2.80 percentage points to 5.32 percent yesterday. The bank took advantage of an easing of tension in Ukraine last month to sell 1 billion euros ($1.35 billion) of bonds due in 2019 at 4 percent. The rate was 4.91 percent yesterday. The ruble slid 2.3 percent to 35.1820 per dollar, the biggest intraday drop since March 3 and the most on a closing basis since 2011.
Bonds and the currency rebounded today, with the ruble gaining 0.3 percent to 35.090 at 2:49 p.m. in Moscow. Bonds advanced 1.1 percent today, the best performance among developing nations, according to the Bloomberg USD Emerging Market Corporate Bond Index. The Micex slid 1.7 percent.
The sanctions "should be sufficient to increase the cost of financing for the whole economy, without causing major disruptions, as the companies now included are all large and well-financed entities," Viktor Szabo, a London-based money manager at Aberdeen Asset Management Plc, which oversees more than $13 billion of emerging-market debt, said by e-mail. "It will make life harder for Russian companies. Russia has a huge tolerance towards hardship."
--With assistance from Ksenia Galouchko, Vladimir Kuznetsov and Elena Mazneva in Moscow and Natasha Doff in London.
To contact the reporter on this story: Lyubov Pronina in London at lproninabloomberg.net To contact the editors responsible for this story: Daliah Merzaban at dmerzabanbloomberg.net Stephen Kirkland