Gazprom to launch Russia’s biggest bond issue

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Gazprom will seek to raise Rbs300bn ($10.2bn) in Russia’s biggest bond issue programme to date, as the gas export monopoly tries to take advantage of a booming domestic bond market to restructure its debts and raise funds for upcoming investments.

Gazprom said on Tuesday that it had mandated its own banking arm, Gazprombank, and Renaissance Capital, the Moscow investment bank, to run the rouble bond programme, with 13 issues planned over five years.

The gas group’s fundraising comes as the company suffers a revenue squeeze because a glut of liquefied natural gas, mainly from the Middle East, has hit its export market in Europe.

Analysts said Gazprom, Russia’s most indebted company, could find it easier to raise such a large amount of cash on the domestic market to restructure its net debt of about $44bn.

“It is a lot easier for Gazprom to raise that sort of money on the domestic market as it can tap into friendly sources,” said Chris Weafer, chief strategist at Uralsib investment bank. “We can expect a large participation from state banks and state-linked funds ... It is easier to raise that type of money by making a few phone calls than through time-consuming and expensive eurobonds.”

But one person familiar with the offering said the company was not ruling out a eurobond issue this year, while the rouble issue gives it “the flexibility to do both” and also take advantage of a huge surge in liquidity in the rouble bond market over the past year.

Gazprom last tapped the eurobond market last summer, raising $2.4bn but taking a cut on pricing.

Since July, Russian companies have issued more than $24bn in rouble debt, as they take advantage of government anti-crisis programmes to boost liquidity in the domestic market.

Investors have been reaping the carry trade benefits of a central bank repurchasing scheme and the surging rouble as oil prices soar above $80 a barrel.

“There is a slightly political angle in that it wants to show we can do this on our own market,” said the person close to the offering. “But it is a pretty attractive investment and there is a lot of liquidity floating around in the market.”

Gazprom last year cut its capital expenditure programme to Rbs500bn from Rbs637bn, delaying the launch of a big new field, Bovanenkovo, by one year to 2012 as it sought to offset a drop in net income that is forecast to fall 23 per cent last year, wiping out free cash flow, according to Troika Dialog, the Moscow investment bank.

This year, Renaissance Capital forecasts it will have to spend $28.6bn on big new capex programmes as it seeks to offset decline at existing fields, and nearly $4bn on big new pipelines, including the Nord Stream pipeline to Europe.

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