Debt management and credit ratings

Debt portfolio

Gazprom Neft relies both on internal sources of financing from operating revenues and borrowed funds to finance its activities. In establishing the proportion of debt and equity in its capital structure, the company seeks to maintain an optimum balance between overall cost of capital, on the one hand, and its long-term financial resilience, on the other.

Key principles in debt portfolio management

The company adheres to a fairly conservative debt financing policy. One of the key principles of the debt policy is to ensure high financial resilience, the important metrics of which are the Net Debt / EBITDA and Consolidated Indebtedness / EBITDA ratios calculated for the Gazprom Neft Group. In accordance with terms and conditions of company’s facility agreements, the Consolidated indebtedness / EBITDA ratio shall not exceed three. As at end of the reporting period (as well as throughout the five-year period preceding the reporting date), that ratio was below the above threshold.

Net debt / EBITDA ratio was 1.3 as at 31 December 2020. All other covenants of facility agreements, and bond and Eurobond offering documents were also fully complied with during the reporting period.

Information transparency of the company’s debt policy is facilitated through the disclosure of the Gazprom Neft Group debt portfolio management performance results through the company’s official website. The relevant section of the website was updated regularly throughout the reporting year.

Key debt instruments

As at end 2020, the Gazprom Neft Group debt portfolio comprised bilateral credit facilities (including revolving facilities), syndicated credit facilities, local bonds, Eurobonds, and a credit facility guaranteed by the Export Credit Agency (ECA). In addition, the company made a number of project-financing transactions.

When raising debt financing, the company takes into account the features of operations being funded, and the situation on debt-capital markets. The diversified structure of the Gazprom Neft Group debt portfolio makes it possible to maintain a flexible debt policy under volatile financing conditions in debt markets.

In 2020, the Gazprom Neft Group raised loans and borrowings totalling ₽118.3 billion (taking into account short-term borrowings), including:

  • local bond offerings in amount of ₽30.0 billion, including bond issue with a record-low coupon rate of 6.2% in the amount of ₽10.0 billion;
  • drawdown of ₽88.3 billion (including short-term borrowings) under facility agreements.

The Gazprom Neft Group repaid loans and borrowings totalling ₽129.4 billion in 2020.

The Group frequently implements initiatives to optimise its debt portfolio structure and profile. To this end, during 2020, the company agreed on better conditions for existing loan facilities, and also carried out long-term refinancing of borrowings in amount of ₽100.0 billion ahead of the schedule.

In the context of favourable market conditions in debt capital markets, Gazprom Neft Group managed to achieve a reduction in the average interest rate on its debt from 6.18% (as at end 2019) to 5.13% (as at 31 December 2020), while increasing the average maturity of its debt from 3.18 (as at end 2019) to 3.23 years (as at 31 December 2020).

As a result of borrowings and repayments realised during the year and changes in the debt of other Gazprom Neft Group companies, the Group’s debt portfolio for the period under review totalled ₽784.2 billion (as at 31 December 2020).

Debt portfolio structure, ₽ million

Key characteristics of the debt portfolio

In terms of maturity, long-term borrowings dominate the structure of Gazprom Neft Group’s debt portfolio, with the proportion of long-term loans decreasing by 1.6% in 2020 (from 95.8% as at 31 December 2019 to 94.2% as at 31 December 2020), which minimises the risk of not being able to refinance the debt in 2021.

Assets and liabilities denominated in foreign currencies significantly reduce the foreign exchange risk: the current structure of revenues and liabilities acts as hedge mechanism in which cash flows in different currencies offset each other. The Group applies hedge accounting for its cash flows denominated in foreign currencies to prevent profit-and-loss volatility. The proportion of rouble-denominated debt was 54.19% as at 31 December 2020, while the borrowings denominated in US dollars and euros amounted to 28.53% and 17.26%, respectively.

The increase in the share of euro and US dollar debt was attributable to exchange rate differences due to the rouble depreciation.

Debt portfolio structure by currency, %

Debt maturity schedule

According to the 2021–2022 debt repayment schedule, Gazprom Neft Group expects to reduce its debt refinancing burden.

Gazprom Neft Group’s maturity schedule, ₽ million

Potential debt capital sources in 2021

Not only did the Gazprom Neft Group successfully completed its 2020 financial debt programme using the most efficient instruments, and it also took a number of major steps for raising funds during 2021, having signed several facility agreements with banks.

The company intends to further improve the efficiency of its debt-portfolio management in 2021 by selecting the best debt instruments available in line with current market conditions, including, but not limited to, bonds, bank loans, and project financing.

Under the multi-currency exchange-traded bond programme registered in 2018, the company is able to promptly arrange exchange-traded bond offerings with maturity of up to 15 years in a total equivalent of up to ₽95 billion. Under a bond issuance programme registered in 2015, the outstanding drawdown amount is ₽5 billion (with notes’ maturity of up to and including 30 years). In addition to that, under the multi-currency short-term bond programme with maturity of up to 364 days, the company may arrange the issuance of exchange-traded bonds in equivalent of up to and including ₽50 billion.

Credit ratings

Throughout 2020, S&P, Moody’s, Fitch and ACRA rating agencies affirmed all the company’s credit ratings at investment grade with a stable outlook. This attests to the company’s financial resilience in an unprecedented environment of falling oil prices and demand.

Gazprom Neft PJSC’s credit ratings