November 14, 2018 / 10:46 AM / 9 months ago

Russia's Gazprom hedges currency risk with novel Eurobond clause

MOSCOW, Nov 14 (Reuters) - Gazprom has moved to protect itself against the impact of any new U.S. sanctions or other risks beyond its control by reserving the right to pay back a 1 billion euro ($1.13 billion)Eurobond in other currencies, a first for a Russian borrower.

A prospectus for the Russian gas producer’s bond issued this week says that “the borrower may satisfy its obligations to make payments ... in an alternative payment currency” in the event of circumstances beyond its control.

Gazprom will decide in which currency payments will be made, but did not specify which risks may trigger the use of an “alternative payment currency”. Gazprom declined to comment on the document, which was seen by Reuters.

“We expect that in the future, all Russian corporate issues will have such an amendment,” Alexey Bulgakov, an analyst with Sberbank CIB, said in a note this week.

Russia, which Bulgakov said has used a similar clause in sovereign Eurobond issues since 2016, is trying to limit the effects of possible new sanctions by the United States, which are expected by the end of the year.

Its third and fourth biggest gas producers, Gazprom Neft and Surgutneftegaz, are pressing Western oil buyers to use euros instead of dollars.

Meanwhile, Rosneft, the world’s largest listed oil company by output, wants Western oil buyers to pay penalties from 2019 if they fail to pay for supplies if new U.S. sanctions disrupt sales, sources have said.

Gazprom temporarily suspended its external borrowing programme earlier this year because of a deepening legal dispute with Ukraine’s Naftogaz over gas supplies.

But a later court decision opened the door for Gazprom to resume tapping global debt markets and since July it says it has borrowed 3.4 billion euros and 58.05 billion roubles ($859 million) from international and Russian banks.

Gazprom will have to give “not less than 6 but nor more than 30 business days’ notice” before the next payment date if it wants to change the currency from euros to sterling, Swiss francs or Russian roubles, the prospectus states.

“Inclusion of this amendment is obviously linked to potential technical difficulties in servicing the debt in case of increased economic pressure from the United States to the Russian corporate names,” Sberbank CIB’s Bulgakov said. ($1 = 0.8877 euros) (Reporting by Oksana Kobzeva Writing by Katya Golubkova Editing by Alexander Smith)

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