Debt portfolio management and credit ratings

Debt portfolio management and credit ratings

As far as funding for its activities, Gazprom Neft relies both on internal funding sources generated by income from operating activities as well as borrowed funds. When determining the ratio of debt and internal financing within the capital structure, the Company seeks to achieve an optimal balance between the overall value of capital, on the one hand, and ensuring long-term sustainable development, on the other hand.

Core principles of debt portfolio management

The Company adheres to a rather conservative debt financing policy. One of the key principles of the debt policy is to ensure a high level of financial sustainability for which an important indicator is the ‘Net Debt/EBITDA’ ratio and ‘Consolidated financial debt/consolidated EBITDA’ ratio as calculated by the Gazprom Neft Group. According to the terms of the Company’s loan agreements, the value of the ‘Consolidated financial debt/consolidated EBITDA’ ratio should not exceed 3. As of the end of the reporting period (and also over the five-year period preceding the reporting date), the ratio’s value was lower than the specified thresholds.

The other conditions of loan agreements and issuing documentation on bonds and Eurobonds were also observed in full during the reporting period.

Disclosing the results of activities for the management of the Gazprom Neft Group’s debt portfolio on the official corporate website ensures the information transparency of the debt policy. During the reporting year, the Company kept the relevant section of its website updated.

Primary debt financing instruments

As of the end of 2015, the Company’s debt portfolio included such instruments as debt financing, credit under the guarantee of the Export Credit Agency (ECA), syndicated lines of credit (including a revolving line of credit), local bonds, Eurobonds and bilateral lines of credit. The diversified structure of the Company’s debt portfolio makes it possible to maintain a flexible borrowing policy given the volatility of the debt capital markets.

When raising debt financing, the Company takes into account the specifics of the activities being funded as well as conditions on debt capital markets.

When raising debt financing, the Company takes into account the specifics of the activities being funded as well as conditions on debt capital markets. Based on this principle, Gazprom Neft had the following borrowings in 2015:

  • the drawdown of credit funds for a total of RUB 62 billion (USD 1.054 million) under agreements concluded in 2013–2014 with a syndicate of European banks, PJSC Sberbank and JSC Rosselkhozbank;
  • attracted credit funds for a total of USD 350 million under loan agreements with certain private Russian banks. The loan rate is LIBOR + 5% p.a. with a term of five years from the drawdown date;
  • attracted credit funds for a total of RUB 72.9 billion under loan agreements signed in the first half of 2015.

The aforementioned borrowed funds were used for general corporate purposes.

As a result of the Company’s borrowings described above, the borrowings of other companies of the Gazprom Neft Group (LLC Gazpromneft Shipping, NIS a.d. and others) and the rouble revaluation of borrowings denominated in foreign currency, the debt portfolio of the Gazprom Neft Group reached RUB 818.1 billion as of 31 December 2015 compared with RUB 563.4 billion as of 31 December 2014.

Debt/EBITDA ratio
Indicator 2011 2012 2013 2014 2015
Net debt/ЕBITDA 0.70 0.50 0.60 1.40 1.90
Debt/EBITDA 0.80 0.80 1.00 1.90 2.37
Debt/EBITDA threshold 3.00 3.00 3.00 3.00 3.00

Source: Company data

Main features of the debt portfolio

Long-term borrowings dominate the Gazprom Neft Group’s debt portfolio in terms of maturity date, thus minimising the risk of the inability to refinancing debt in 2016.

Debt portfolio structure RUB mn
Indicator 2011 2012 2013 2014 2015
Short-term credits and loansShort-term loans and credits and the current portion of long-term loans and credits. 41,114 77,193.0 52,413.0 61,121.0 147,319.0
Long-term credits and loans 174,503 166,447.0 261,455.0 502,306.0 670,779.0
TOTAL 215,617.0 243,640.0 313,868.0 563,427.0 818,098.0
Percentage of short-term credits and loans, % 19.1 31.7 16.7 10.9 18.0
Percentage of long-term credits and loans, % 80.9 68.3 83.3 89.2 82.0

Source: Company data

Debt repayment schedule

Based on the Gazprom Neft Group’s debt repayment schedule, the Company does not anticipant any significant increase in the debt refinancing burden in 2016–2017.

Debt repayment schedule of the Gazprom Neft group, RUB mn
Name Under 6 months 6-12months 1-2years 2-5years 5 years or more
Bank loans 15,797 23,460 78,335 169,132 6,905
Local bonds 12,452 2,031 23,212 32,434
Loan participation notes 5,880 2,532 6,566 80,530 200,107
Other loans 14,362 311 220 1,219 2,006
TOTAL 48,491 28,334 108,333 283,315 209,018

Source: Company data

Potential instruments for attracting financing in 2016

Despite the unfavourable market situation, the Company not only fulfilled its financial borrowing programme in 2015, but also took a number of important steps to ensure the ability to attract financing in 2016, including the signing of several loan agreements.

In addition, the Company is searching for alternative sources of financing. In particular, work is under way to attract debt financing on Asian markets, financing for imported equipment and services as well as project financing.

In order to ensure the ability to promptly raise debt financing in the form of a local bond issue, the Company registered a multi-currency Exchange Bond Programme in 2015. The Programme remains in effect for 30 years, thus enabling the Company to promptly organise an issue(s) of exchange bonds for a period of up to 30 years for a total in the equivalent of up to RUB 100 billion inclusive if the need arises. The Company is also actively involved in improving legislation on the securities market as regards the placement and circulation of local bonds as part of the Bond Issuers Committee of the Moscow Exchange.

Credit ratings

In February 2015, China’s largest ratings agency Dagong assigned Gazprom Neft a high long-term credit rating of ‘AA-’ with a stable outlook.

In early 2015, three ratings agencies downgraded their credit ratings of Gazprom Neft all at once after Russia’s sovereign credit rating was downgraded:

  • 14 January 2015 Fitch: from ‘ВВВ’ to ‘ВВВ-’ (negative outlook),
  • 20 January 2015 Moody’s: from ‘Baa2’ to ‘Ваа3’ (negative outlook),
  • 25 February 2015 Moody’s: from ‘Baa3’ to ‘Ва1’ (negative outlook),
  • 04 February 2015 S&P: from ‘BBB-’ to ‘ВВ+’ (negative outlook).
In December 2015, Moody’s revised its outlook from ‘negative’ to ‘stable’ due to a change in the sovereign rating outlook.

As of the end of 2015, all the Company’s credit ratings were at the same level as the country rating of the Russian Federation.

Credit ratings of Gazprom Neft as of 31 december 2015
Agency Scale Rating Outlook
Standard&Poor’s International scale in foreign currency BB+ Negative
National scale (Russia) ruAA+ Negative
Moody’s International scale in foreign currency Ba1 Stable
Fitch Long-term default rating of issuer in foreign and national currency ВВВ- Negative
Dagong Long-term credit rating on obligations in foreign currency AA- Stable

Source: ratings agency data