Hit by US sanctions, Rosneft pleads for debt relief

Dmitry Zaks
Russia's President Vladimir Putin (L) talks to Rosneft chief Igor Sechin at the Kremlin in Moscow on July 2, 2013
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Russia's President Vladimir Putin (L) talks to Rosneft chief Igor Sechin at the Kremlin in Moscow on July 2, 2013 (AFP Photo/Maxim Shemetov)

Moscow (AFP) - US sanctions against Moscow appeared Thursday to have claimed their first major victim when Russia's largest oil company was forced to call on the government to urgently cover its massive debt.

The Vedomosti business daily broke the news that Rosneft chief Igor Sechin had written a letter to the cabinet outlining five ways it could help the company repay nearly $45 billion (34 billion euros). More than half the amount comes due by the end of next year.

Deputy Prime Minister Arkady Dvorkovich said the government was expected to issue its response to Rosneft by August 27.

Sechin's plea marks a grand success for Washington's efforts to strike at the very heart of Russian President Vladimir Putin's inner circle -- often referred to as Russia Inc. -- because of its paramount role in running the country's most powerful businesses.

Putin helped Sechin -- viewed as one of the Kremlin chief's closest confidents -- build Rosneft into the world's biggest publically-traded oil producer through the $54-billion takeover of the TNK-BP joint venture in 2013.

Rosneft now pumps 40 percent of Russia's oil and is tasked with helping Putin transform the Arctic into a new Middle East for energy resources that the Kremlin could use to help dominate global affairs over the coming century.

Washington's measures prevent Rosneft and Novatek -- a private gas firm overseen by several other close Putin allies -- as well as two state-held banks from raising anything but short-term debt that matures within 90 days on the US market.

European lenders are obligated to comply if they want to keep their US operations.

Vedomosti said Sechin had asked the government to use one of its two rainy-day funds to purchase 1.5 trillion rubles ($42 billion) in specially-issued Rosneft bonds.

Another controversial proposal would grant Rosneft the right to gain control of new Arctic and onshore fields without a bidding process.

- 'Bad signal' for Rosneft -

Russia's VTB Capital investment house said the outcome of the ruling on Sechin's request "is still unclear" because the government faced so many other problems that became exposed by an economic slowdown that could see growth disappear this year.

But Moscow's Higher School of Economics professor Konstantin Sonin called Sechin's plea "a bad signal that means something is very wrong" at Rosneft.

A Moody's analysis said Rosneft needed to repay $26.2 billion between July 2014 and December 2015. More than $21 billion comes due between October and March alone.

The New York-based investors' service estimated that nearly $6 billion of that sum will need to be refinanced.

Both Fitch Ratings and several top US banks warned that Rosneft's future cash flows may also be dented by European sanctions on the Russian energy sector.

Rosneft relies upon access to advanced Western technology to maintain production at its depleting Soviet-era fields in Siberia and to tap new resources in the Arctic and the Far East of Russia.

Bank of America Merrill Lynch said Rosneft's Arctic exploration agreement with the US super-major ExxonMobil stood to recover three times as many hydrocarbons as were available at the Russian company's biggest current project.

But the oil's recovery "will very much depend on the future cooperation between Russian and international oil companies, and the future of Western sanctions," Bank of American Merrill Lynch said.

- State banks in peril -

Rosneft is by far the most important company on the US hit list. But the sanctions also threaten to freeze the financing of Russian projects that Putin hopes can drive future growth.

The state development bank VEB -- the country's second-largest by assets -- reportedly told the government last week that it needed infusions of up to $1.7 billion per year to keep financing strategically important Russian projects.

Vedomosti said VEB was especially concerned that it will be unable to refinance European bonds that it is using to guarantee $40.5 billion in loans to Russian exporters that it promised to issue between 2016 and 2018.