Gazprom Thinks Good Time For Bond Issue

Less than 3 percent of Gazprom's export revenue is pledged as collateral on existing loans, deputy chairman Alexander Medvedev said. The state-run company could refinance debt on more favorable terms now than it was able to when Russia defaulted on debt in the late 1990s, he said.

"We have the possibility to borrow easily," Medvedev said in an interview. If "banks come back to normal operations to finance industry and trade, we don't anticipate any problems to raise money, either secured or unsecured."

The new issue market for ruble bonds has been all but shut to Russian companies since August as the ruble declined 32 percent versus the dollar and investors shunned the securities as the economy weakened. Gazprom has said it may borrow $2.6 billion in Russia and foreign markets this year to refinance debt.

Gazprom's American Depositary Receipts, each representing four shares, rose 71 cents, or 5.1 percent, to $14.62 in New York Stock Exchange trading Friday. The stock has dropped 71 percent in the past year.

Less than one-third of Gazprom's $93.5 billion annual revenue was derived from Russia in 2007, according to Bloomberg data. If Gazprom chooses to use its export revenue as collateral for a bond issue, it could conclude a deal within "a couple of weeks," Medvedev said.

Russia defaulted on $40 billion of debt in 1998, pushing the government to the verge of bankruptcy. At that time, Gazprom was able to use export revenue to issue debt at 2.5 percentage points to 3 percentage points above the London interbank offered rate, or Libor, Medvedev said.

The three-month Libor is at 1.238 percent, down from an average 2.93 percent during 2008.

While there are "signs of improvement" in the market for new Russian debt, the company is unlikely to sell new bonds while credit-default swaps trade at current levels, he said. Gazprom can service existing debt from its own cash flow, Medvedev said.

"We have a simple rule," Medvedev said. "If we do not see proper conditions, we will not borrow."

Chief financial officer Andrei Kruglov told a news conference Thursday that Gazprom would sell bonds "not sooner than this fall."

The ruble's devaluation has helped the company control costs as export sales are in dollars while most costs are in rubles, Medvedev said. A 1 percentage point devaluation in the ruble gives Gazprom an additional $290 million, he said.

Gaz Capital credit-default swaps have soared to 981.9 basis points from 236 basis points in the past six months, according to Bloomberg data.

Credit-default swaps pay the buyer face value if a company defaults in exchange for the underlying securities or the cash equivalent. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

Source: The Moscow Times

Author: Ksenia Kochneva