Russian companies are being forced to throw oil at their dollar problem
According to Reuters, the company has committed to sell around 500,000 metric tonnes of oil to wiss oil trading company Trafigura this month. That figure is more than double its usual 150,000-200,000 tonnes agreed on as part of a five-year financing agreement reached in 2013.
The new deal with Trafigura illustrates the huge pressure the Rosneft is currently under to raise funds after international sanctions over Russia's role in Ukraine effectively cut the company off from international financial markets.
Many Russian oil companies are having difficulty gaining access to foreign currencies, such as dollars and euros, while the collapse in the ruble's value has sent the costs of foreign-currency debt payments soaring.
The sanctions prevent companies in the US and Europe from undertaking long-term financing deals with Russian firms, but allow for short-term financing arrangements of up to 30 days, Reuters reports. For companies with sizeable foreign debt obligations, such as Rosneft, this is proving a huge problem.
Trafigura has only been able to retain its ties with Rosneft because its original deal was struck before the sanctions came into effect. Now it is becoming a lifeline.
As Rosneft is no longer able to borrow against its future earnings from the markets as a company would normally be able to do but is having to exchange its product (oil) for dollars as its debts come due. In effect, it is settling its debts with oil.
This latest deal comes after the oil giant announced last week that it was set to place 400 billion rubles ($6.1 billion) worth of bonds into the Russian domestic market. The company was forced to deny that it would use the proceeds for the "purchase of foreign currencies."
This was prompted by the furore surrounding a similar deal in December that was widely believed to have been used to help pay off a $7 billion bill in debt repayments due in December. Former Russian finance minister Alexei Kudrin pointed the finger at Rosneft for spooking currency markets on Twitter after the company received what was widely seen as back-door refinancing by the Russian central bank.
Even the head of Russia's central bank has said that the deal was "opaque" and may have helped drive further falls in the value of the ruble. And that's a big problem for Rosneft and other large Russian companies - there is no shortage of available ruble funding but tapping it helps sink the value of the currency and drives up the cost of repaying the foreign-currency debt.
In short, we can expect more of these types of deals.