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. Last Updated: 07/27/2016

Doubt Cast on Rosneft Loan

Industry and Energy Minister Viktor Khristenko on Wednesday cast doubt on the terms of a $7.3 billion loan that the government is seeking from Western banks to pay for control over Gazprom.

Khristenko suggested that collateral for the loan might come in the form of oil supplies from state-owned Rosneft --and not in the form of Rosneft shares, as has been widely expected.

"Rosneft shares might not be provided at all -- this variant has not been ruled out," Interfax cited Khristenko as telling reporters.

Western banks have been lining up to provide the loan to Rosneftegaz, a vehicle set up to hold Rosneft and bridge financing for the increase in the state's share in Gazprom to a controlling one.

Khristenko's remarks clashed with details of the deal disclosed by Economic Development and Trade Minister German Gref last week and indicated that talks with Western lenders may have gotten bogged down.

On Friday, Gref told reporters that the state would put up less than 50 percent of Rosneft's shares as collateral for the loan. The loan could come as early as this week, Gref said.

"The fact that Khristenko is now suggesting this shows that talks are not yet finalized and that uncertainty still persists," said Valery Nesterov, oil and gas analyst at Troika Dialog.

Offering oil exports instead of shares as collateral suggests that Rosneft --which is 100 percent state-owned -- may be getting cold feet over a planned share issue next year to pay back the loan.

Using exports as collateral could reduce the need to sell the shares, Nesterov said.

"Rosneft appears to want to sell as small a stake as possible. They want to create a major state energy holding on the basis of Rosneft."

In his remarks, however, Khristenko said plans were still on course to sell Rosneft shares next year.

"Further developments with Rosneft are clear and predictable -- an initial public offering and the placement of shares on the open market," he said.

Rosneft is battling for position to become the state's main energy giant, and that struggle appears to be complicating the expected terms of the loan deal, Nesterov said.

"The fight is being guided not by economic rationale but by politics. This makes the level of predictability very low," he said. "The list of potential bidders for Rosneft [shares] is very long. ... It includes Western companies and the Chinese, as well as Russian, firms, including Surgutneftegaz."

The loan is further complicated by a web of legal threats that have snared Rosneft ever since it took over Yuganskneftegaz, Yukos' main production unit, following a controversial auction last year.

Rosneft is already weighed down by more than $20 billion of debt, and it is unclear how much oil Rosneft has left as collateral.

In January, Rosneft pledged 50 million tons of exports to China over the next five years as payment for a $6 billion loan it obtained from Beijing.

Furthermore, supplies from Yugansk are already locked up in a creditor dispute over an outstanding $482 million loan to Yukos that was backed by crude from the unit.

Banks put Rosneft in technical default after it refused to pay the loan. It will have to reach an agreement with the banks before it can pledge more supplies as collateral for the $7.3 billion loan, said Stephen O'Sullivan, co-head of research at United Financial Group.

Supplies from Yugansk may give bankers no better security than if they take shares in Rosneft, but the move could delay the need to sell Rosneft shares, he said.

"The banks opened up the doors ,and then they realized they'd opened up a Pandora's box of claims and litigation," O'Sullivan said.

Yukos' main shareholder, Group Menatep, has filed suit against the Russian government in The Hague for the expropriation of Yugansk, making any loan deal or sale of Rosneft shares a potential legal trap.