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. Last Updated: 07/27/2016

Gazprom Pipelines Get German Funds

FRANKFURT -- Gazprom clinched funds Thursday to finance two existing pipelines in Germany and said the deal may help trigger more German investments to help construct a massive trans-Siberian pipeline.


Gazprom, Russia's leading gas company, signed a 1.3 billion Deutsche mark ($932 million) project-financing deal with German chemical group BASF AG's energy unit Wintershall AG and a banking consortium of 27 German and international banks.


The funds will be used to pay off BASF's initial financing of Gazprom's portion of the Midal and Stegal pipelines, which run from northwestern and central Germany to the French border.


The pipelines became operational in October 1994 and cost a total of 4.4 billion marks.


Germany's Commerzbank AG arranged the financing and acted as lead underwriter along with three other large German banks: Deutsche Bank, Dresdner Bank and Bayerische Hypotheken-und Wechselbank. Each put up 100 million marks.


Seven European and Japanese underwriters contributed 60 million marks each and 16 international managers, including U.S. groups Chase Manhattan Bank and Citibank, put up 30 million marks each.


J--rgen Terrahe, a Commerzbank board member, hailed the deal as the biggest project financing ever arranged without government guarantees and forecast that if it is successful then "new possibilities for funding could become available."


Gazprom's chairman Rem Vyakhirev said he hoped the deal marked "the beginning of a great cooperation that will last for years." Seizing the stage at the news conference, he urged the assembled European bankers to free up more funds for new deals.


He assured the audience, "I do not rule out that some of the credits [for a new pipeline to run from Siberia to Western Europe] will come from Germany."


Privately, bankers were more cautious however, saying German banks were only willing to take the risk on the existing pipelines because they were already built on German ground.


Referring to the construction of the Yamal pipeline, a senior German banker said: "I get the sense the German banks are not prepared to take such risk. We need security and there is still concern about a lack of legal protection in Russia."


But Wintershall chairman Herbert Detharding said BASF would be interested in taking a stake in the privatized Gazprom, particularly in light of the already existing joint venture between the two.


Bankers said a planned private placement had been postponed last year as prices set by the group were too high.


The new 4,020-kilometer pipeline will run from the northern Siberian Yamal Peninsula through Russia, Belarus and Poland to western Europe and cost an estimated $10 billion.


The pipeline is expected to carry about 2.37 billion cubic feet of Russian gas a year to Germany and France and is to be completed by 2010.