Gazprom Neft to borrow $2 billion in 2018 in bet on lower rates

By Dina Khrennikova and Stephen Bierman on 8/10/2017

MOSCOW (Bloomberg) -- Gazprom Neft PJSC, the oil arm of Russia’s natural gas exporter, plans to borrow the equivalent of $2 billion next year, seeing crude markets stabilizing and the country’s central bank continuing to lower rates.

Gazprom Neft will be an “active player” in the domestic debt market and use the proceeds mainly for refinancing, CFO Alexey Yankevich said in an interview from St. Petersburg, conducted via a videolink. The company, which is barred by sanctions from major international borrowing, is targeting bonds with a maturity of five to seven years and will also seek bank loans, he said.

The Bank of Russia paused easing in July as tensions with the U.S. worsened after three straight interest-rate cuts this year. Policy makers said they may return to easing in the second half of the year if inflation continues to slow. Last week, President Donald Trump signed legislation that may keep blacklisted firms out of foreign markets for years, giving Congress the power to block the executive office from lifting sanctions.

The market is unlikely to worsen and may improve, Yankevich said.

“Stabilization in the domestic debt market is even clearer than in the oil market,” Yankevich said in Moscow. “If the oil market stabilizes, which is what we believe, it will enable the central bank to pursue its policy of reducing interest rates for the real sector.”

Gazprom Neft sold 15 billion rubles ($250 million) of seven-year bonds with a coupon of 8.25% this month, after selling a similar amount earlier in April. The company may also offer short-term bonds by the end of the year, Yankevich said.

“This will not be a significant amount, it will be trial deals,” he said. The program allows sales of up to 50 billion rubles.

Gazprom Neft isn’t looking to raise money in Asia, as Russian hopes that China would replace U.S. and European financing shut down by sanctions have failed to materialize.

The rates in Asia are "noticeably higher" than it can get domestically, Yankevich said. “But from the point of view of diversification it is important, we keep a hand on the pulse.”

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