Russian oil titans Rosneft OJSC, Lukoil PJSC differ in bond market despite low oil prices

January 18
5:22 AM 2016

Russia's Rosneft OJSC and Lukoil PJSC may both be giant Russian oil firms that are affected by extremely low crude prices, but the latter seems to be more resilient than the other. Rosneft is paralyzed by its $22 billion debt.

According to Bloomberg News, state-controlled Rosneft bonds are suffering due to fears that it won't be able to pay back its $22 billion debt as energy prices continue to decline. Meanwhile, bonds of the privately owned Lukoil seem to be more robust. Premium investors demand to have Rosneft's six-year securities over Lukoil's notes went up to 65 basis, from the previous month's 20 basis.

Rosneft's debt will be under the spotlight as crude oil drops further down below $30 a barrel. Rosneft will find it hard to pay its debt to the BP Plc due to the country's sanctions for supporting separatist groups in Ukraine.

Reuters wrote that the western sanctions imposed on Moscow were aimed at putting long-term pressure on the country. The Eu and US sanctions against Moscow imposed in 2014 led to a 1.5 percent loss to Russia's economic output in 2015.

"Naturally those under sanctions suffer more," said Uralsib Capital head of research Dmitry Dudkin. "Lukoil is simply in better shape financially. It's much less levered. Rosneft is loaded with debt."

The Wall Street Journal reported that Oil prices declined bellow $30 per barrel on Friday. This is the lowest it has been since 12 years. This is caused by China's economic slowdown and the increasing production and export of Iran, whose international sanctions were recently lifted.

Meanwhile, Rosneft paid $15 billion in advanced payment for oil supply it got from an unknown source last year. According to its press officer, the $23 billion fund it accumulated in the first nine months of last year shows that it can pay its $13.7 billion debt in 2016. However, Barclays Plc analysts Stella Cridge reported a low exposure to Rosneft bonds, and higher for Lukoil bonds.

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