UPDATE 3-Rosneft approves $17 billion domestic bond programme

(Adds source, quotes, background)

MOSCOW, Nov 24 (Reuters) - Russia’s largest oil producer Rosneft is to return to the country’s domestic bond market after a two-year absence with a programme worth 1.071 trillion roubles ($16.6 billion), the company said on Thursday.

Rosneft, which is preparing to buy 19.5 percent of its own shares from the state in a share buyback deal worth around 700 billion roubles, said that the money raised from the bonds might be used for overseas projects, new upstream business and planned refinancing.

A Rosneft source said the company has no plans to use bond proceeds to finance the potential share purchase from its parent company, the state energy holding Rosneftegaz. Rosneftegaz holds a 69.5 percent stake in Rosneft.

“There is no intention, no goal to use funds any other way (than for overseas projects, new upstream business and planned refinancing),” the source said. A Rosneft spokesman declined to comment.

A government decree earlier this month ordered the sale of a 19.5 percent stake in Rosneft, held by Rosneftegaz, to be finalised by Dec. 5, with the budget receiving the funds by end-2016. It did not stipulate a buyer, but Rosneft is widely expected to buy the stake itself.

A Rosneft spokesman declined to comment on the timing, size of the first bond and whether the bond proceeds can be used to finance Rosneft’s own buy back. The bonds issued under the programme would have a maturity of up to 10 years.

The company also said its subsidiaries would be able to buy its bonds as part of the programme.

Rosneft also said on Thursday its board had approved Gazprombank as the arranger for the bond issue and the bank might buy up to 173.2 billion roubles in Rosneft bonds. A Gazprombank spokesman declined to comment.


Rosneft, which is under Western sanctions over Moscow’s role in the Ukraine crisis, faces limits on raising funds outside Russia.

A large Rosneft bond issue at the end of 2014 coincided with a steep slump in the rouble, with the deal later facing critics from the Russian central bank governor as non-transparent.

Russia’s central bank declined to comment on Thursday on the possible effects of a new Rosneft bond programme on the country’s money and forex markets when contacted by Reuters.

In December 2014, Rosneft had issued 625 billion roubles of bonds in the domestic bond market. This caused volatility in domestic money market, which had expected the company to use the money to buy foreign currency. The company said at the time that proceeds were not used to buy foreign currency.

In January 2015, Rosneft placed another 400 billion roubles in domestic bonds. It has not been active in the domestic bond market since then.

Rosneft said in a statement the latest bond programme would be conducted in separate issues taking into the account the timing of investments and planned refinancing.

The Rosneft source said that the company would decide on the volume of each tranche according to company needs. The source declined any details on timing or volume of a first issue.

“There is a repayment schedule and we... have to have corporate approvals to redeem and refinance (our) debt on schedule,” the source said.

Rosneft net debt stands at $26.1 billion as of the end of the third quarter. It has to pay off $3.8 billion in the fourth quarter of 2016 and another $12.9 billion in outstanding debt next year, according to the company’s latest presentation.

Last month, Rosneft signed a deal to buy a 49 percent stake in Indian refiner Essar Oil, in a transaction costing over $3 billion and pending regulatory approvals.

“This (bond programme) is a framework decision, to cover our needs in quarters to come taking into account strategic overseas deals we have had planned,” the source said. ($1 = 64.6999 roubles) (Additional reporting by Yelena Orekhova, Vladimir Abramov and Vladimir Soldatkin in MOSCOW, Dmitri Zhdannikov in LONDON; Writing by Denis Pinchuk/Katya Golubkova; Editing by Jane Merriman, Christian Lowe and Alexandra Hudson)


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