International investors believe in Lukoil’s future

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Russian private oil producer Lukoil said it has finalized about $ 2.3 billion in new financing from international investors.

Lukoil has sold corporate Eurobonds for a total of $ 1.15 billion which will be repaid in 2027. In addition, the company has received an additional $ 1.15 billion Eurobonds which it will have to repurchase. in 2031.

The bonds will trade on the London Stock Exchange in the UK.

The placement was oversubscribed with investors reporting approximately $ 3 billion total interest in the bonds; 80% of investors declared no affiliation with Russia.

Low interest rates

This allowed its organizers – global investment banks Citi and JP Morgan and Russian Gazprombank – to attach a lower-than-expected annual interest rate to bonds.

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The Moscow business daily RBK quoted Gazprombank vice-chairman Denis Shulakov as saying that the placement has become the biggest loan of its kind for Lukoil in international markets.

Lukoil said in a latest financial report that its long-term debt had declined to around $ 7.2 billion at the end of June from $ 7.8 billion at the end of December 2020, with the placement of new bonds expected to increase long-term debt. of the company by about 32%.

According to the press release, the new Eurobonds carry interest rates between 2.8% and 3.6%. In the meantime, the bonds that Lukoil placed earlier and which mature between 2022 and 2026 are more expensive to manage as their annual interest rates vary between 4.6% and 6.7%.

With the fall in the new interest rates on Eurobonds, Lukoil is now preparing to reconcile these types of loans with existing direct lines of credit with international banks which, according to the press release, have an annual interest of around 2 , 5%.

Rating over Russia

The international rating agency Fitch has rated Lukoil’s bonds at “BBB +”, a step above Russia’s national “BBB” ceiling due to the strong foreign debt service capacity of the producer in hard currencies. oil.

Fitch predicted that Lukoil’s earnings before interest, taxes, and depreciation for 2021 will exceed pre-pandemic levels, driven by both the resumption of upstream and downstream activities as well as rising international oil prices.

According to Fitch, the rating also reflects Lukoil’s focus on Russia and the risks associated with the country’s operating environment.

Lukoil’s oil and gas production remains heavily exposed to Russia at around 90% of its production despite the company’s prolonged efforts to diversify its international upstream projects.

Senior executives at the company have repeatedly stated that Lukoil will remain committed to producing hydrocarbons for decades to come.

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