The problem is that Gazprom is no ordinary company: “I wonder whether the banks chasing these mandates actually understand how it works. It’s a state within a state – and being Russian makes the process all the more complex. Any western bank that gets involved ought to expect trouble at some point down the line,” says one banker.
The latest victims are ABN Amro and Goldman Sachs. They had agreed in April to extend Gazprom a $1 billion bridge loan as part of a package to win the mandate for $2 billion-worth of convertible bonds and a Eurobond later in the year. “We were to run the books on the convertible, and ABN on the Eurobond,” says Glenn Earle, managing director at Goldman. “After this was agreed, Gazprom’s management told us we would have the mandate if we could offer the bridging loan – and then gave us one week to decide.”
Nothing unusual in that: Russian companies are increasingly tying debt mandates to bridging loans. And the bridging loan was to have been refinanced either by the $3 billion syndicated loan which Dresdner Kleinwort Benson and Crédit Lyonnais are planning for September or November or by bond issues. ABN Amro and Goldman signed a protocol covering the loan and debt mandates.
The plan, as with almost all of Gazprom’s international debt, was to secure the loan with receipts from international gas contracts, in this case with Gaz de France. It was here the deal broke down. The French government had jurisdiction over the contract and might have been reluctant to allow its use for a loan by non-French banks.
“We were warned about this, and knew that Gazprom was up against the wall. It needed the money quickly, which might have forced it to get the loan elsewhere – but it had also signed the protocol with us,” says Earle. “We couldn’t get an agreement from the French to use the contract. Then, miraculously, a French bank appeared with an agreement on the same contract.”
Crédit Lyonnais, the French bank which had got the agreement, puts it differently. “Gazprom has three contracts with Gaz de France,” explains a spokesman for the bank’s oil and gas group. “We used one of them, and they were going to use the two smaller contracts, although I believe that ABN Amro had fought over it before with Dresdner and Morgan Stanley. The reason that we got the bridging loan is because they couldn’t fulfil all the precedents and legal requirements quickly enough.”
According to one consultant working in the sector, Goldman was furious. “They were livid that the French hijacked the deal. There was no question that the gas contract guarantee was pulled from under their feet.”
Away from the heat of the moment, Goldman is complimentary about its client: “We have a very good relationship with senior management,” says Earle. “It’s one of the five major companies in the region which we regard as absolutely critical to have as our client. We were initially angry at losing the loan, having spent so long negotiating the terms and the security. But Gazprom needed the money quickly, and in hindsight we’re not so concerned as we only did it to secure the mandate on the convertible and the Eurobond, and we still have those mandates.”
For Crédit Lyonnais, which has had a relationship with Gazprom for two years, the loan helped assure its place as co-arranger on the company’s next jumbo loan, a $3 billion eight-year deal for which Crédit Lyonnais will be in charge of documentation, and Dresdner the syndicate. At the start of August, the two banks were mandated for a $1 billion bond, in addition to the $2 billion already mandated to ABN Amro and Goldman.
These deals, combined with the two syndicated loans, will lift the total raised publicly by Gazprom this year close to $8 billion, and all except the Goldman-ABN deals are to be secured by gas contracts. Secured debt offers Gazprom cheaper funds, but exposes it to the risk that investors will demand a large premium when it issues unsecured paper.
This could happen soon, as many gas contracts have already been used as collateral: domestic contracts are too risky, partly because they either go unpaid for long periods of time (as with electricity company Unified Energy Systems’ account), or are settled by barter. The Crédit Lyonnais spokesman describes the French bank’s deal as Gazprom’s last secured deal, referring to the loan, not the newly announced Eurobond. Others are not so sure. “Apparently, Gazprom has already used up its best contracts to secure its debt,” says the consultant. “Those with Germany, Italy and France are all tied up now. The company has started to turn to its Finnish and Norwegian contracts.”
There is no doubt that Gazprom is the Russian company which investors would like to see issue international debt. Its paper ought to be the benchmark, rather than issuers that have preceded it such as UES. But could its reputation be tarnished by banks too eager to win a mandate to worry about the future?
