Rosneft to Shrink from Debts of YUKOS
// This is seen from the accounts of the state-controlled company
Disclosure of Information
Rosneft may face technical default for $1.661 billion-worth uncleared loans at the end of the year, which is evident from the company’s financial documents for the first six months of 2006. Rosneft hopes that tax claims, put forward against Yuganskneftegaz when it belonged to YUKOS, will be cut by $3 billion. Even in this case, the oil company will have to pay out at least $1.7 billion to settle the claims against Yuganskneftegaz and $662 billion – to cover the loan that Group MENATEP granted to YUKOS. The default will cost Rosneft cheaper but may bring down the company’s credit rating dramatically.
The debt of the company fell from $20.117 billion at the beginning of the year to $18.608 at the end of the period of the report, according to the financial accounts in US GAAP standards that Rosneft published. The consolidated net debt of Rosneft dropped to $11.2 billion from $12.6. Sergey Alexeev, the company’s first vice-president on economics and finances, stated that the net debt may remain at the same level by the end of the year or come down to $10.5 billion.
Mr. Alexeev underscored in his speech to analysts of investment companies that Rosneft had settled “all technical defaults which followed heavy borrowings to purchase Yuganskneftegaz”. It concerns violation of the terms of syndicated loans that Rosneft received before 2004, its long-term part of the uncleared debt amounting to $1.661 billion. Among the terms violated are: the ratio of the permanent debt to the consolidated EBITDA (earnings before interest, depreciation and amortization), and the ratio of the permanent debt to the consolidated tangible net assets.
The accounts of Rosneft mention that in the third quarter of 2006, the company’s creditors approved “the exemption of the liabilities for the violated terms and a charge in terms given the new structure and the scope of the activities of the company.” However, the approval from creditors “in a number of other terms” contains a demand for Rosneft to settle by December 31 the liabilities of Yuganskneftegaz following earlier tax audits and satisfy demands of the Societe Generale bank to clear $2.6 billion-worth loan that a syndicate of banks and Group MENATEP had granted to YUKOS, Yuganskneftegaz being an underwriter.
Rosneft barely have chances to settle all the claims by the end of the year. The company’s report published yesterday says that Yuganskneftegaz had the total of $4.7 billion-worth tax claims, as of June 30. “Officials of the company suppose that it is hardly probable that the decision of tax agencies to levy $3 billion from Yuganskneftegaz will be invalidated,” the document runs. The company views the payment of the remaining sum as probable. Thus, it will have Rosneft at least $1.7 billion to clear the tax claims against Yuganskneftegaz by the end of the year.
Settling the claims from banks (Group MENATEP especially) that credited YUKOS, is going to be far harder. As of June 30, the uncleared loan to the syndicate of banks headed by Societe Generale came to $472.7888 million. Yuganskneftegaz owe another $655.725 million to Group MENATEP. The syndicate of banks demands that the remaining part of its loan to YUKOS be paid off, while another shareholder of YUKOS, MENTEP, went to a London court asking to charge $662 million from Yuganskneftegaz. Tim Osborne, managing director of Group MENATEP, said that the final hearing of the case would be held in the middle of the next week. “We are not holding talks with Rosneft so far,” he told Kommersant yesterday. “There is nothing to argue about – it was Yuganskneftegaz that was securing the payment of the loan.”
If the London court sides with Group MENATEP, the payment of some $2.36 billion will be only way for Rosneft to avoid the technical default for $1.661 billion-worth loans. Besides that, the oil company will have to hurry courts of different instances to consider the tax claims case against Yuganskneftegaz as soon as possible. The announcement of technical default for loans may entail their immediate clearing. It is noteworthy that a default will be cheaper for Rosneft than efforts to avoid it by paying out the claims of tax officials and creditors. On the other hand, the default will inevitably bring down the company’s credit ratings and its further borrowings will be more expensive.
Kommersant will track the development of the events.
Anna Skornyakova, Denis Skorobogatko, Alena Miklashevskaya
All the Article in Russian as of Nov. 25, 2005
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