Can you give us some insight into what you’re seeing in the local market and the evolution of the funding environment in Russia in recent months?
Over the past six months, we’ve seen some recovery in the local debt market as well as several Eurobond placements from Russian issuers such as Gazprom, Global Ports, VimpelCom’s Russian subsidiary and, more recently, the Russian sovereign deal. To give you a sense of pricing, yields on Gazprom Neft’s Eurobonds due in 2022 dropped from the high of 7.7% in January of this year to as low as 5.2% in May, which is a significant improvement.
We are seeing opportunities in the ruble-denominated local bond market, which certainly supports companies and banks – some of which are still under sanctions. While the macro markets are still volatile, we have seen a positive trend over the past five months, with the FX situation improving and oil prices making a gradual recovery.
Things are likely to get better for borrowers as the year advances. Interestingly, some companies and banks can now go to the local bond market and raise debt at a lower interest rate than the Central Bank of Russia’s key rate (of 11%). Given that the CBR’s key rate is expected to drop to 9.5% by the end of 2016, we hope to see further market improvement.
As a result of this market situation, we’ve seen around 90 local bond issues, totalling roughly RU720bn, since January of this year, quite a substantial amount. Gazprom Neft itself issued RU25bn of exchange-traded bonds in the second half of March. That deal is the first local bond placement for the company since 2012 and is the highest-value market transaction (in terms of size) from a Russian corporate issuer since 2014.
As market conditions improve, we continue to look for opportunities to optimise our debt portfolio. Those might include issuing more local bonds; however, we have not made any concrete decisions on this as of now.
How does Gazprom Neft’s experience operating under sanctions compare to what you feel other corporates are experiencing?
A Since the sanctions were imposed, banks have been very careful about every Russian borrower due to compliance reasons. But the sentiment seems to be improving, including for Gazprom Neft: banks are now more open to exploring ways of how to help Russian companies and banks raise financing under the sanctions regime.
These sanctions have had an impact on Gazprom Neft’s borrowing structure. Throughout 2013 and 2014, the Company was relying mainly on borrowings on the international markets – for example, in 2013 Eurobonds constituted 71% of our new borrowings. In 2015, 90% of our new borrowing was in the form of bilateral loans with Russian banks.
Gazprom Neft – and its parent – seems to have shifted its attention eastward. Has it changed the types of financing stakeholders the company engages with? What are some of the most influential factors driving that change?
We have seen an increasing number of deals with Asian banks in our market, and Gazprom Neft is also looking to boost collaboration with Asian institutions. Our senior management has been meeting regularly with top banks in Japan, China and other Asian countries to explore opportunities for potential cooperation. We are interested in extending cooperation with Chinese banks given the significant levels of liquidity they can provide, but most of the deals we are currently looking at are linked to Chinese exports/imports. This is one of the reasons why most of the deals with a strong Chinese bank backing we’ve seen so far have come from the telecoms sector, which relies heavily on Chinese equipment manufacturers and contractors, or from commodities exporters.
Our parent company is quite active in that area: Gazprom signed a €2 bn 5-year bilateral loan with the Bank of China earlier this year, and is supporting us in our negotiations with Asian financial institutions.
