Four Russian energy majors have asked the government to lend state money on market terms to help refinance foreign debt and buy new assets abroad as they become cheaper, a top oil executive said on Tuesday.
Vagit Alekperov, president and a major shareholder in LUKoil, Russia’s second-largest oil producer, told Reuters in an interview he had discussed the idea with President Dmitry Medvedev at a meeting last week.
The idea was masterminded by LUKoil, top Russian oil firm Rosneft gas monopoly Gazprom and No. 3 oil firm TNK-BP, said Alekperov, who added his company hoped to get between $2 billion and $5 billion in state loans. “The reaction was positive. We hope the government will disburse this money on market terms. We are not talking here about any preferences,” he said. US oil major ConocoPhillips has a 20% stake in LUKoil.
“This is big step on behalf of the government to support the efficiency of our oil industry,” Alekperov said. The four majors join the race for state funds after the government said it was prepared to lend $50 billion to Russian companies to repay debt to foreign banks. The money has been raised in recent years to fuel growth at home and abroad.
Russian companies have to repay $120 billion before the end of 2009. The virtual closure of global capital markets has made state help almost unavoidable at a time of a decline in oil prices and a slump on the Russian stock market. Gazprom, which has a consolidated debt of almost $60 billion, confirmed on Tuesday it had signed a letter to the government asking it to allocate funds. “The presence of such a mechanism of crediting in force majeure situations is important for Gazprom, its shareholders and investors,” it said in a statement but added it did not need any urgent additional financing at the moment.
Relative to Gazprom and Rosneft, Russia’s most indebted companies, LUKoil -- with short-term debt of $2.3 billion and a long-term debt position of $6.4 billion -- carries a light debt load. But it has to fund a €1.35 billion ($1.83 billion) deal to buy half of Italian refiner ERG SpA’s Mediterranean plant before the end of the year.
STATE TO FUND EXPANSION
Alekperov said state money could be used to fund this deal. “We have the ERG project. Gazprom and Rosneft have large borrowings. Our company counts on a sum of $2 billion to $5 billion. This will allow companies to develop dynamically, plus have money to buy assets.” LUKoil’s head said it would be a wise move by the state to lend money to companies as assets abroad were becoming cheaper. “The market situation is difficult today. Many projects are being put on ice. There are a lot of assets on offer on the markets of western and eastern Europe,” Alekperov said.
“Today we are getting a chance to buy assets, which could allow LUKoil to become a truly transnational company. We are getting the chance to become more aggressive.” As far as Russian assets are concerned, Alekperov said he saw the banking and construction sectors as the main potential victims of the financial crisis, given their high leverage. But he said his personal investment expenditure would be directed only at raising his stake in LUKoil, currently at around 20%. “I don’t see a ceiling for my holding because, as long as it remains profitable and the company is three times undervalued, why would I channel my money to other places?” he said, adding that one day he could increase his stake to 25%.
LUKoil’s current market value is $34 billion, down from the $96 billion at which it peaked in May. Alekperov said the company had no plans to launch a large-scale buy-back of shares, but would buy some stock for its management options program. (Reuters)