Russian privately held oil producer Lukoil says it has completed raising $2.3 billion of new financing from international investors.

Lukoil sold corporate Eurobonds for $1.15 billion that will be redeemed in 2027. It received a further $1.15 billion from Eurobonds that it will have to buy back in 2031.

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The bonds will be traded on the London Stock Exchange.

The placement was oversubscribed, with investors indicating a total interest of about $3 billion in the bonds; 80% of the investors reported no affiliation with Russia.

Low interest rates

That permitted its organisers — global investment banks Citi and JP Morgan and Russia's Gazprombank — to attach a lower-than-expected interest rate to the bonds.

Moscow business daily RBK quoted Gazprombank vice president Denis Shulakov as saying the placement has become the largest borrowing of its kind for Lukoil on international markets.

Lukoil said in its latest financial statement that its long-term debt declined to around $7.2 billion at the end of June from $7.8 billion last December, with the placement of new bonds thus expected to raise its long-term debt by about 32%.

According to the statement, the new Eurobonds carry interest rates between 2.8% and 3.6%. Bonds that Lukoil placed earlier and which mature between 2022 and 2026 are more expensive to service because their annual interest rates vary between 4.6% and 6.7%.

With the fall in new Eurobond interest rates, Lukoil is getting closer to bringing such types of borrowings on a par with existing direct credit lines from international banks that, according to the statement, have an annual interest of about 2.5%.

Rating above Russia

International credit rating agency Fitch has rated Lukoil’s bonds at BBB+, one notch above Russia’s BBB country ceiling due to the producer’s strong external hard-currency debt-service capacity.

Fitch has projected that Lukoil's earnings before interest, taxes and depreciation for 2021 will exceed pre-pandemic levels, driven by recovery in upstream and downstream activities, along with rising international oil prices.

According to Fitch, the rating also reflects Lukoil’s concentration on Russia and the risks related to the country’s operating environment.

Its oil and gas production remains heavily exposed to Russia, at around 90% of output, despite prolonged effort to diversify its international upstream projects.

Its top executives have repeatedly said Lukoil will remain committed to producing hydrocarbons for decades ahead.