Rostislav Ishchenko: How Gazprom “Conquered” Europe

Translated by Ollie Richardson & Angelina Siard


Gazprom placed in London the issuance of €750 million worth of eurobonds for a period of eight years. The rate of profitability is 2.5% (the initial reference point is 2.875%). I.e., in the process of placement “Gazprom” won back nearly a half-percent in its own favor. In total, in the last four years “Gazprom” raised more funds in the world financial markets than Ukraine received.

Events unfolded in a similar way at the end of February, when “Gazprom” placed 750 million Swiss francs worth of eurobonds for five years at 1.45% per annum. Back then the initial reference point of profitability was also 2%, and the order book was opened at a rate of 1.75% then the rate decreased by 0.3%.

For comparison: Georgia in 2011 placed eurobonds for $500 million for ten years at a rate of 7.5% (the initial reference point was 7.25). In June, 2017 Belarus placed two loans worth $1.4 billion dollars for six (7.125% per annum) and ten (7.625% per annum) years.

As we see, the terms are comparable, but “Gazprom” attracts money at a record-low interest rate. Moreover, in the process of subscription the rate of profitability decreases. I.e., there are enough persons interested in buying the bonds of “Gazprom” to reduce the already low percentage of profitability.

Meanwhile, as a rule, States are considered to be more reliable borrowers than companies. They rarely disappear without a trace. As a last resort they have transferees. Any State has essential foreign property: buildings of embassies, consulates, trade missions, State companies, government holdings in foreign banks. In a peak situation it can be directed towards covering some (or all) debt obligations.

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Of course, the US has more foreign property than Nepal. But nobody will ever lend to Nepal what the US was lent, and will be lent again.

And lastly, rarely are States allowed to go bankrupt. We saw how the EU untied the hands of the Greek authorities, but didn’t allow them to declare a default on very heavy debts, forcing them to borrow again — to service old obligations. The IMF surveys its clients in a similar way. Even the opportunity to become bankrupt has to be merited. During this time investors not only defray expenses, but also earn a decent amount of money, and the State, after numerous restructurations owes them even more than before.

Companies aren’t so reliable, and some even use the opportunity to declare themselves bankrupt in order to  avoid paying off debts. That’s why companies are more often than not given money at a higher interest rate and for a shorter period of time. There are exceptions. There are companies that are in the same column as States. But we, after all, heard many times from our “partners” abroad and their friends inside the country that Russian companies can’t be in the same category as western ones, that their management is run-of-the-mill and capitalisation is far from the successes of “Apple”, that they spend money inefficiently, that embezzlement is awful, and that the State uses them to pursue political goals to the detriment of business. At the same time we were told that Russian statistics and officially published indicators of companies shouldn’t be trusted, and that allegedly they will write what they want.

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In the case of “Gazprom” we have a quite objective market evaluation. The market isn’t afraid to give money to the Russian gas giant under ultra-low interest rates. Since the beginning of year “Gazprom” attracted about €1.5 billion, and in 2018 it plans to attract about €5.5 billion (about $7 billion) in total. The purpose is the investment program of the current year. I.e., investors consider that “Gazprom” will invest this money correctly and at a profit.

The most consumable projects of “Gazprom” for 2018 are the construction of gas pipelines: “Nord Stream-2”, “Turkish stream”, “Power of Siberia”, and also the development of a network of liquefied natural gas terminals. All these projects are connected to expanding the circle of consumers of “Gazprom” production, and also to the expansion of opportunities and the diversification of methods and ways to deliver gas to the consumer. The excessive demand for the bonds of “Gazprom”, which defined the low interest rate and its further decrease in the process of subscription, testifies to the fact that investors consider these projects to be real and profitable, and “Gazprom”, from their point of view, is a reliable company that, unless something indeed threatens it in the next 8 years, will be nothing but successful. Therefore, it can give a lot of money for a long period of time and at a low interest rate.

“Gazprom”, without kicking up a fuss, attracted more funds in the world financial markets over the last four years for its projects than Ukraine received, whose leaders constantly rush around the world cap in hand and take everything that is given to them, at any interest rate and with any time constraints. It’s impossible to say to “Gazprom”: “Dismiss the cleaning lady, otherwise you won’t receive a billion dollars”, and in Ukraine the General Prosecutor was dismissed in this way.

There is also one more important thing — perhaps the most important point. The placement of “Gazprom” bonds happened on March 14th — at the height of Theresa May’s hysterics, when threats were thrown at Russia, and promises were again made to crush its economy, referring to the fact that the British one is bigger by its volume (they didn’t learn anything from Obama’s experience). “Gazprom” is an important component of the Russian economy. I will say more: the only way that the Russian economy will collapse is if “Gazprom” is torn to pieces.

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From this point of view the confidence of investors in the stability of “Gazprom” means not only their confidence in the implementation of the “stream” projects, liquified natural gas, the expansion of Russian hydrocarbon supplies to the Pacific Rim, and others. It means their confidence in the stability and wellbeing of Russia. Including because without the relying on a superpower – on the Russian State, a company such as “Gazprom” can’t exist — competitors and envious persons will destroy it, realising their long-standing dreams of leaching onto a source of profit that was “unfairly” (in their opinion) given to Russia and Russia alone.

So Gazprom eurobonds are the best “response to Curzon”.

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