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. Last Updated: 07/27/2016

Rosneft Taps $22Bln In Loans

MTA view of Rosneft's headquarters. The Federal Property Fund said it had not received a single bid for the two auctions.
Rosneft announced Tuesday that it would borrow a record $22 billion from eight foreign banks to fund its purchase of assets, including those of the bankrupt oil company Yukos.

One of the two loans, worth $9 billion, will finance the bid for Yukos' 9.44 percent stake in Rosneft at an auction set for March 27, the state oil company said in a statement.

The formal beneficiary of the loan will be Rosneft's new fully owned subsidiary, RN-Razvitiye, which has already requested authorization from the Federal Anti-Monopoly Service to buy the stake, Rosneft said. Rosneft will act as guarantor for the loan.

Rosneft set up RN-Razvitiye in January with a starting capital of only 10,000 rubles ($384).

The second loan, for $13 billion, will go directly to Rosneft, the company said in the statement. Rosneft CEO Sergei Bogdanchikov indicated that Rosneft would use the money to bid for Yukos oil refineries going under the hammer later this year.

"Currently Rosneft has a substantial inbalance between the amount of oil production and the capacity of its oil refineries," Bogdanchikov said in the statement. "That's why we are interested in participating in the auctions for Yukos assets.

"With the successful borrowing of $22 billion, we ended an important stage of preparation for the auctions and are ready for competition."

The amount represents the biggest loan taken out by a Russian company. Rosneft's board approved the decision to take out the loans March 15. The money will come from ABN Amro, Barclays, BNP Paribas, Calyon, Citibank, Goldman Sachs, JPMorgan Chase and Morgan Stanley.

The interests rates for both loans will range between 0.25 and 0.5 above London Interbank Offered Rate, Rosneft said. The larger loan matures in 12 months and the smaller one in 18 months.

As Yukos' second-largest creditor, Rosneft is owed 264 billion rubles ($10.1 billion). It will claim the debts after the auctions, thus recovering much of the loans.

The Federal Property Fund, which is organizing the auctions, said Tuesday that it had not received a single bid for either auction.

"So far there are no bids for either the first lot or the subsequent ones," said fund chairman Yury Petrov, Interfax reported. The deadline for applications is Friday.

The starting price for the first lot, which includes the Rosneft stake, is 195.5 billion rubles ($7.5 billion), 18 percent below its market value. The lot also contains promissory notes issued by Yuganskneftegaz, a former Yukos production unit now owned by Rosneft.

If Rosneft were to bid for the shares and buy them, it would have to sell them within one year because they would have the status of treasury shares. But if RN-Razvitiye wins the auction, it will have more time and options to handle the shares, such as using them to refinance loans, issue convertible bonds or sell them as global ­depository receipts.

Previously, Rosneft hinted that it was interested in Yukos production units Samaraneftegaz and Tomskneft.

The date for the auction to sell these units, as well as Yukos' five oil refineries has yet to be set, said Nikolai Lashkevich, a spokesman for Yukos' court-appointed receiver, Eduard Rebgun. Separate evaluations for the units were not available.

The loans will also help buy other assets in Russia and abroad, Rosneft said without giving any details.

It was not clear how much of the loans will remain for Rosneft to spend after the Yukos auctions. Earlier this month, Rebgun valued Yukos at between $25.6 billion and $26.8 billion, but said he would offer discounts of up to 30 percent. Gazprom or its allies will likely gain Yukos assets worth 145 billion rubles ($5.7 billion) in the April 4 auction. That lot includes 20 percent of Gazprom Neft and gas production units Arcticgaz and Urengoil.

Market expectation is that Rosneft will not face tight competition in the first auction.

"Most likely, the first lot ... will go at the starting price," Bank of Moscow oil analyst Vladimir Vedeneyev wrote in a daily note Tuesday.

Rosneft will apparently sell its shares after it buys them at the auction in order to repay the loans, Vedeneyev said, basing his speculation on the length of the loans.

When it comes to oil units and refineries, Rosneft could face competition from U.S. oil major Chevron, which expressed interest in bidding for some of Yukos' assets, Lashkevich said last month. Itera has also signaled interest in Yukos property, Lashkevich said.

Rosneft's possible spending targets abroad could include construction of a refinery in China and a chain of gas ­stations in the country, Vedeneyev said in a telephone interview.

Rosneft's debt stood at $11 billion at the end of last year and it agreed to borrow another $2 billion earlier this month, Interfax reported.

The new loans should be well protected, said Roland Nash, chief strategist at Renaissance Capital.

"International creditors realize the money will be spent on some very well-valued assets. There are political and historical reasons why the association with Yukos, or Yukos assets, might be considered risky, but there are very few such credit-worthy entities in Russia as Rosneft," Nash said.

Yukos was declared bankrupt Aug. 1, 2006, more than one year after its founder Mikhail Khodorkovsky was sentenced to nine years in jail for fraud and tax evasion.

The Russian government seized and sold Yukos' main asset, Yuganskneftegaz, in Dec. 2004 to cover its tax arrears. The buyer was a vehicle called Baikal Finance Group, which sold Yuganskneftegaz to Rosneft shortly after purchasing it.

Rosneft shares, like those of all other Russian oil companies, fell slightly Tuesday. The drop signals a general cooling off toward oil companies, Vedeneyev said.

Staff Writer Miriam Elder contributed to this report.