Moscow Times: For the Record

Moscow Times: For the Record

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  Gunvor, a closely held energy trader, bought gas storage capacity and rights to import liquefied natural gas in northwest Europe as it expands gas, power and emissions trading, the company said Wednesday. (Bloomberg)
  
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  Sberbank plans to lend "several hundred million dollars" to "large" companies in Belarus in the next few months, chief executive German Gref said Wednesday, RIA-Novosti reported. (Bloomberg)
  
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  PIK Group may sell shares to raise about $500 million, Kommersant reported Wednesday, citing a source familiar with the plans. (Bloomberg)
  
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  Gazprom said Wednesday that Naftogaz Ukrainy had been buying less gas in the first quarter than stipulated in a supply contract. (Bloomberg)
  
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  RusHydro may seek a strategic investor in itself or projects to expand abroad in 2012 or 2013, deputy CEO George Rizhinashvili said Wednesday. (Bloomberg)
  

Bond markets across the globe are getting giddy and Russian issuers are rushing to join the party. How long will the dance last and will there be a hangover?

In the wake of the carnage in late 2008, investors could pick up blue-chip paper such as the one-year Norilsk Nickel bond or even Gazprom paper for silly money. Yields soared as high as 25% as companies went in a desperate search for cash. But these bargains were short lived. The market has been recovering since spring 2009 and had returned to pre-crisis levels across the board by the end of February. A wave of Russian Eurobond issues is now breaking on the shores of the international capital markets as the rouble continues to strengthen and the Central bank of Russia (CBR) looks increasingly isolated in its relaxed monetary policy.

Russian corporates issued around $10bn in Eurobonds last year – a fraction of what they were offering in the preceding years. And most of these issues were limited to quasi-sovereigns. Gazprom's GAZ-19 arrived in April 2009 with a coupon many considered tight at 9.25%. The same paper was trading at 119.35 for a 6.4% yield in early March. Now, with banks like VTB and Alfa back on the market, joined by lesser lights such as Alliance Oil, the party is starting to get going with $20bn-30bn worth of issues anticipated this year (compared with an average of around $15bn per year between 2005 and 2007).

Bond issues are back in vogue, as despite the crisis most banks are sitting on the huge piles of cash they built up, ready to fight the much talked about second wave of the crisis, which is now looking increasing unlikely. This cash comes with a cost, so banks are casting about for something to do with their money and investing into high-quality bonds is an obvious answer. At the same time, international money is being driven towards the high-yielding Russian paper by the extremely low interest rates at home: US bonds are yielding less than 3% at the moment. The irony is that it was exactly this combination of yield-hungry foreign investors coming from low-rate markets that caused the just-punctured bubble to form in the first place.

And Russian corporate bonds are amongst the most appealing securities on offer. As the economy moves back into growth mode, the state's robust macroeconomic fundamentals make investing into Russian bonds an attractive proposition.

Issuers are winding the Eurobond market tighter as they set the terms to investors who have few high-yielding assets to target for the moment. "A lot of fund managers have been complaining since September that they don't like the prices, but they can't leave these huge inflows in cash," points out one broker based in London.

He mentions Alfa Bank's $600m, five-year issue in early March, which was originally offered at a yield of at 8.25% but pared back by 25 basis points (bps) by issue. "Investors resigned themselves to an 8% coupon," he says, "although secondary activity suggests that they weren't quite as keen as for the recent VTB or Bank of Moscow issues. I think buyers (many Asian) are simply holding it." Around a week later, however, Alfa's paper was trading tighter.

Russia domestic ruble bond market is also catching fire. Dominated by junk bonds before the crisis, today there is a range of high-quality issues following the rush last year of corporates to turn domestic securities acceptable for repo by the CBR into cheap dollar financing. By the end of 2009, the corporate ruble bond market had seen 163 issues raise nearly RUB800bn ($25.8bn), while CBonds predicts a further RUB650bn this year.

However, local bonds have always been the last port of call for international investors given their wariness of the longer-term stability of the Russian currency and the illiquid nature of the market. Alexey Bulgakov, senior fixed-income analyst for Troika Dialog, points out what they've been missing: "They've been very slow to return, but those that did three or four months ago are very happy. The returns are supernatural. Since the end of December, Evraz bonds, for example, have reaped an annual return of 80% - and that's in roubles!"

As the Eurobond market continues to tighten, local money could lose some of its current 95% share of the domestic bond market (pre-crisis it shared the market with international money fairly equally). A premium still persists, because there simply aren't that many international accounts in the local market and therefore they're not hoovering up all the paper. The London broker reports that many clients are now seriously considering opening accounts to take on this deeper exposure to the Russian currency, which is expected to continue to appreciate. (On March 18, the ruble regained its pre-crisis price against the euro as the exchange rate dropped below RUB40 to the euro.)

The only thing that could stymie the obvious enthusiasm for Russian paper is the sheer size of issues that are in the pipeline. Despite the flurry of issues, Russia is only now starting to roll out its big guns.

Russian Railways launched its debut Eurobond roadshow on March 15 and hopes to raise $1bn with a 10-year maturity. At the other end of a crowded spectrum is a forthcoming RUB1.5bn domestic issue from retailer Victoria Group. And this is not to mention the Russian state, which in December roadshowed sovereign Eurobond issues that could start in April and bring in between $10bn-$18bn (depending on how oil prices develop this year) and are bound to be snapped up by investors. Deputy Finance Minister Dmitry Pankin claimed in February that the new issuance would slash borrowing levels for the sovereign "by several tens of basis points."

In the meantime, there is enough liquidity about to ensure lots of buyers of Russian bonds. Nikolay Podguzov of Renaissance Capital says that the expanding supply of paper will begin to meet a greater percentage of existing demand at some point as central banks around the world start trying to drain liquidity out of their economies. At that point interest rate spreads – already back to pre-crisis levels – will have no fundamental reason to drop further. "The likelihood of default amongst Russian corporates is now higher. Cash flows have dropped and leverage risen. Yes, overall Russian corporates are relatively underleveraged still, but the distribution of debt is also very narrow."

Activity in the Oil and Gas sector (including regulatory)

BNE: Rosneft threatens to abandon Europe for Asia following Yukos lawsuit

http://www.businessneweurope.eu/dispatch_text11397

bne
March 25, 2010

Russian state-owned oil major Rosneft said it may switch its focus from Europe to Asia after a YUKOS subsidiary, Yukos Capital S.a.r.l. (Netherlands), won a case to freeze some of the companies assets in a a British court case, reports Interfax.

Rosneft will start delivering 15m tons of crude a year to China from East Siberian fields next year after the company signed a oil-for-credit deal with China last year worth $25bn.

Rosneft now sends 20% of its oil exports to China which was worth $5bn in 2009.

Moscow Times: LUKoil Looks Abroad as Investor Leaves

http://www.themoscowtimes.com/business/article/lukoil-looks-abroad-as-investor-leaves/402506.html
25 March 2010

Bloomberg

LUKoil, the country's largest nonstate oil company, plans to spend as much as $8.5 billion a year to support production at home and double output at foreign projects from Iraq to West Africa, deputy CEO Leonid Fedun said Wednesday.

Capital expenditures will rise to $8 billion to $8.5 billion per year for the next couple of years, after dropping 38 percent in 2009 to $6.53 billion, Fedun said in a presentation in London.

About $3 billion per year will be invested in projects outside Russia during the next three years, said Andrei Kuzyayev, head of LUKoil's overseas production arm. Iraq and central Asian will provide the biggest output gains, he said.

LUKoil, with the most overseas assets among Russian oil producers, has looked abroad for profit and expansion because of Russia's tax burden and the preference that state companies enjoy in gaining on new projects.

"The company has focused on stabilizing output inside Russia and increasing output abroad," Fedun said. "There's one main reason for this, in West Africa, imagine this, the level of taxation is three times lower than that in Russia."

Foreign output will probably double to 446,000 barrels of oil and gas per day in 2015, Kuzyayev said. Profit may reach $1.5 billion that year, he said, after it slid 31 percent last year to $612 million. LUKoil's net income dropped 23 percent to $7.01 billion last year as the crisis damped prices and demand at the beginning of the year, the company said Wednesday.

Oil output may begin in 2013 at Iraq's West Qurna-2 field, which LUKoil plans to develop with Statoil. The Russian company plans an initial investment of $3.7 billion in the field, Kuzyayev said. After that, the project will use free cash flow from the field itself to fund development.

LUKoil and partner Statoil won the rights to develop the field in December after agreeing to pump 1.8 million barrels per day for a fee of $1.15 per barrel.

The company is also exploring West Africa, Saudi Arabia and Venezuela. Kenya is interesting, as is Uganda, although the company is "just looking" now, Kuzyayev said.

But the oil producer has abandoned work in Iran because of the threat of U.S. sanctions, although it may still return.

LUKoil, a minority partner in the Statoil-led Anaran project, took a $63 million impairment loss in December "due to the incapability of undertaking further works because of the threat of economic sanctions of the U.S. government," according to its 2009 financial statements.

The company is vulnerable to sanctions as it owns a network of U.S. filling stations with Houston-based ConocoPhillips, which plans to sell half of its 10 percent stake in LUKoil in two years.

"We aren't saying goodbye," Kuzyayev said. "It's just the principal position of our auditors and doesn't mean that we lose the rights to that project."

If political and economic conditions are favorable, LUKoil is ready to return to the project, Kuzyayev said.

The Iran Sanctions Act, intended to deny the oil-rich Persian nation resources to further its nuclear program or support U.S.-identified terrorist organizations, forces companies to choose between the United States and Iran. Companies investing more than $20 million a year in Iran's energy sector are subject to U.S. restrictions.

"Gazprom Neft is a safer option to maintain Russia's existing link with Iran than the more commercially exposed LUKoil," said Chris Weafer, chief strategist at UralSib. "Russia does not want to give up on its foothold in one of the top OPEC countries by reserve base nor to be seen as complying with U.S. pressure."

Gazprom Neft, oil arm of Gazprom, aims to develop Iran's Azar and Changuleh deposits. U.S. sanctions do not interfere with the company's plans, Gazprom Neft CEO Alexander Dyukov said in December.

LUKoil doesn't plan any "significant" acquisitions this year and isn't looking at additional European refineries after boosting capacity to an "optimum" 75 percent of oil production, Fedun said.

Moscow Times: Rosneft, Gazprom to Get Licenses

http://www.themoscowtimes.com/business/article/rosneft-gazprom-to-get-licenses/402512.html
25 March 2010

ST. PETERSBURG — Rosneft and Gazprom will probably get licenses to offshore fields this year, Deputy Natural Resources and Environment Minister Sergei Donskoi said Wednesday.

Rosneft may get five or six licenses, and Gazprom may get seven or eight, Donskoi told reporters. Some of the licenses the companies applied for lie off Sakhalin, he said.

(Bloomberg)

Moscow Times: Glencore's $1Bln Oil Foray Tests Russian Arena

http://www.themoscowtimes.com/business/article/glencores-1bln-oil-foray-tests-russian-arena/402496.html
25 March 2010

Reuters

When giant commodity trader Glencore allocated $1 billion to get a foothold in Russia's lucrative oil business, it unwittingly entered an ownership battle that may prove a test case for Western investment.

Swiss-based Glencore, renowned for its connections and trading might, is now working to resolve the fate of midsized oil producer Russneft in a case that will gauge the investment climate for private money in Russia's natural resources sector.

The deal seemed simple: Glencore, which for decades had been trading Russian coal, oil and aluminum, lent more than $1 billion to Russneft from 2003 to 2005 in exchange for stakes in some units of the firm, controlled by billionaire Mikhail Gutseriyev.

But in 2007, Gutseriyev fell from favor. After being accused of tax fraud and seeing his son die suddenly in mysterious circumstances, he fled the country.

This left Glencore without its formerly trusted partner, facing ownership changes that would be a concern to any major lender, and not fully in control of the fate of its investment.

An aluminum magnate who has business links with Glencore briefly bought Russneft from Gutseriyev but had to sell it back.

Now, Russian media report that the fugitive tycoon is returning. Where does this leave Glencore's investment?

"We continue to work with the company and its key stakeholders to help resolve its complex financial situation," Glencore said in e-mailed comments about Russneft, adding that it remained a shareholder in units and a lender to the company.

"We are committed to working with the other creditors and hope to find a reasonable solution for all parties to restructure the company and develop its future production," Glencore said.

Global oil firms such as BP and Royal Dutch Shell have experienced setbacks in Russia in a decade during which the Kremlin has strengthened its grip over the energy sector at the expense of foreign majors and homegrown tycoons.

While foreign investors bemoan political risk, corruption and a weak judicial system, insiders often attribute failed deals by major public companies to a lack of experience and connections in the political and business elites.

But Glencore is different, insiders say.

"Glencore has been present here since the 1970s as Marc Rich," said a top executive with a Russian oil major, referring to the founder of Glencore, who sold his stake to management.

"So if they — with all their experience and contacts — got into this situation with Russneft, what signal does it give to smaller private-money people?

"It is one straight message: not to get involved."

Though modest by Russian standards, Russneft gave Glencore an equity foothold in the world's largest oil nation as part of its strategy to own assets ranging from aluminum smelters to sunflower crushers all over the world.

The deal guaranteed that Glencore would always have Russian oil volumes to trade as major rival Gunvor, co-founded by businessman Gennady Timchenko, grabbed a bigger market share.

Russneft's 300,000-barrels-per-day assets, once valued at more than $3 billion, would also bolster Glencore's own valuation as it takes steps toward a possible stock float.

But investors would want clarity over Glencore's role at Russneft. Insiders say that, as with any major Russian deal, only Prime Minister Vladimir Putin knows the answer.

Putin has never commented on why Gutseriyev, always loyal to the Kremlin, fell out of favor. He was nevertheless allowed to sell Russneft for about $3 billion to Oleg Deripaska, another tycoon seen as loyal to the Kremlin, sources said.

Glencore has a long history with Deripaska and owns a minority stake in his United Company RusAl. But Deripaska, facing major debt problems, was forced to sell Russneft back to Gutseriyev.

Officials have said nothing publicly about why the fugitive tycoon's fortunes have changed. While it is not clear whether Gutseriyev has returned to Russia, he has secured support from telecoms magnate and Kremlin ally Vladimir Yevtushenkov.

Yevtushenkov is buying 49 percent of Russneft — which owes about $1 billion to state-run Sberbank — and has hinted at a merger with his own assets.

Stanislav Bozhenko, a fixed income analyst at UralSib who covers Russneft's only bond, a 7 billion ruble paper maturing in December, says the market already expects Russneft to merge with Yevtushenkov's group, Sistema.

"It is easy to believe that foreigners find it hard to understand the nature of such deals," he said.

"There are many players here, including Deripaska, Sberbank, Gutseriyev, Yevtushenkov and politics. To bring Glencore into the dialogue — you will never reach a deal."

Glencore, however, is working to safeguard its interests. Even some of its rivals are confident that a solution will be found.

"Glencore are hardened fighters. Sometimes it seems it is all over for them, but they resurrect again. They know all about political risks, unlike oil majors," said a senior trader with a large Western oil company.

Houston Chronicle: Brief: Chevron unit says Russian law ‘may impede' exploration

http://www.chron.com/disp/story.mpl/business/energy/6927569.html

Bloomberg News

March 24, 2010, 6:13AM

Russia's law on foreign investment in strategic sectors “may impede” oil exploration because of the security procedure for license winners, the head of Chevron Corp.'s Russian unit said.

“The strategic assessment appraisal process should be done up front, before the exploration period commences, and national security issues should be considered at the time,” Darrell Cordry said at an American Chamber of Commerce conference in Moscow today.

www.bloomberg.com

Trend.az: Russian Stroytransgaz to close office in Turkmenistan

http://en.trend.az/capital/pengineering/1658607.html
25.03.2010 11:54

Turkmenistan, Ashgabat, March 25 / Trend Capital H.Hasanov /

The Russian Stroytransgaz will liquidate its office in Turkmenistan, the company reported today. Stroytransgaz will also liquidate a representative office in the Islamic Republic of Iran and branches in several Russian regions - Irkutsk, Krasnoyarsk, and Tyumen.

Stroytransgaz has worked in Turkmenistan since 2004. The company implemented oil and gas production and drilling equipment deliveries under several contracts in 2005-2006. Stroytransgaz won a tender for the construction of the main Malay-Bagtyyarlyk gas pipeline, worth 359 million euro, in February 2008. The work on the project successfully ended in December 2009.

The pipeline was a major part of a large-scale Turkmen gas transportation project to China via Uzbekistan and Kazakhstan. The company's Chairman Alexander Ryazanov attended the pipeline's inauguration ceremony.

Stroytransgaz consists of construction, engineering, industrial, oil and gas, and financial institutions.

Among the company's customers are Gazprom, Lukoil, Mosenergo, NIAEP, Rosneft, Sintez, TNC-BP, Transneft, RUSAL, BOTAS, ConocoPhillips, DEPA, Dolphin Energy, GAIL, Reliance, Saudi Aramco, SONATRACH, and the Syrian Gas Company.

Gazprom

Balkans.com: Turkey eyes future Iraq oilfield tenders with Gazprom, U.S. firms

http://www.balkans.com/open-news.php?uniquenumber=52355
Orhan Coskun in Ankara - 25.03.2010

Turkey will decide within two weeks on whether to go ahead with investment in Iran to produce natural gas, in a deal that would upset the United States.

Energy Minister Taner Yildiz said late Tuesday the deal, with an estimated worth of $5.5 billion, had political support in Ankara.

The decision to press ahead now rested with firms carrying out feasibility studies in the South Pars gas field, Yildiz told Reuters in an interview.

The United States is seeking to isolate Iran over its nuclear programme, which the West fears includes covert ambitions for nuclear weapons. Washington is lobbying Turkey and other countries to support the threat of economic sanctions.

"We will decide within two weeks on our final decision on the investment in Iran," Yildiz said.

"This project has complete political support, but companies are carrying out the talks ... If the feasibility is not high we will not continue," he said.

Turkey, a non-permanent member of the U.N. Security Council, is sceptical about the efficacy of sanctions and has expressed doubts that Iran is building nuclear weapons.

A partner in the European Union-backed Nabucco pipeline project, Turkey supports the idea of using Iranian gas as throughput for the proposed pipeline, which aims to reduce Europe's dependence on Russian gas.

A net energy importer, Turkey is trying to secure more gas for itself and maximise its potential as a hub for cross-border pipeline projects linking Europe to suppliers in the Middle East and Central Asia.

The energy alliances with Iran and Russia have been a factor fuelling doubts about whether Turkey, having seen its bid for EU membership falter, has begun drifting away from its traditional Western allies.

Yildiz said Turkey planned to bid, along with Russian partner Gazprom and some U.S. firms, in future tenders to develop Iraqi oilfields.

Turkey was part of a Gazprom-led group that won rights last year to develop Iraq's Badrah oilfield.

The minister also said Turkey planned to finalise the privatisation of its natural gas grids this year.

Ankara has been pushing to speed up the pace of its privatisation programme, which slowed in 2009 due to poor market conditions.
Source: Reuters; Balkans.com

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