Russian state controlled gas producer Gazprom has resolved to issue so-called perpetual bonds from the country’s leading banks and pension funds in order to improve its balance sheet at a time when earnings remain insufficient for deleveraging and authorities seek to tie the company even closer to the political agenda.
Speaking on Wednesday in Moscow, Gazprom deputy executive board chairman Famil Sadygov said the monopoly and its consultants are preparing to sell perpetual bonds later this year in a bid to raise 150 billion rubles ($2 billion).
A perpetual bond that Gazprom initially trialled last year on international markets, imposed no obligation on the gas giant to redeem the principal by any stated date in the future.
In return, a holder of such bonds receives a contractual right to receive regular interest payments from Gazprom at fixed dates indefinitely.
No liability increase
Sadygov has acknowledged that under International Financial Reporting Standards, Gazprom has the right not to classify such bonds as a liability increasing total debt.
He acknowledged that Gazprom’s debt has remained at “uncomfortable levels” against its earnings since the company’s business was impacted by the Covid-19 pandemic and the subsequent drop in gas demand and energy prices.
According to Gazprom’s latest consolidated financial report, its gross long-term debt rose by over 3% to almost 4.4 trillion rubles by end of March this year against the end of December last year.
This happened despite reporting a sharp recovery in revenues to 2.3 trillion rubles in the first quarter of 2021 and net profit attributable to shareholders at 447 billion rubles, which was described by Sadygov as “the best quarterly result in the last two years”.
Sadygov said he expects to raise a total of 526 billion rubles by 2025 from selling perpetual bonds to Russian institutional investors, such as major state controlled and privately held banks and pension funds.
There are no immediate plans to offer such bonds to private investors, he added.
Domestic network expansion demands
He admitted that Gazprom's decision to sell unredeemable bonds was driven by demands from Russian authorities for new infrastructure projects.
This includes new distribution networks in remote areas, delivering natural gas to town and villages where many residents still use wood to cook food and heat their homes.
Gazprom has to sell gas to the Russian population at discounted price regulated by the government, so investments into such local networks are usually not commercially attractive.
The government sees its push for the wider availability of cheap gas as a means to boost approval ratings amidst the country’s economic decline.
Russia is due to hold nationwide elections to the lower house of parliament, the Duma, this autumn, with the ruling party United Russia aiming to retain majority seats despite discontent over numerous corruption investigations into its members' acrtivities.