August 10, 2011 |
|Russian Transneft had a strong balance sheet as at Q1 2011 with affordable debt level and high liquidity. However recently it was announced that the company would be ready to repay a $10bn loan early and break its 20-year oil delivery contract with China, in case their conflict escalates. The dispute arose from the underpayment for delivered oil by China National Petroleum Corp. (CNPC) since the beginning of this year. Should the contract be broken, this would in turn impact the deal with Rosneft which has received a $15bn loan from the Chinese. This would then have a negative impact on the financial position and liquidity of Transneft and Rosneft and would force the companies to look for alternative funding - potentially at higher rates. An investment outflow of $35bn would also look negative at a country level. However, it seems more likely that a compromise with CNPC will be reached. Transneft eurobonds underperformed Gazprom (also BBB/Baa1/BBB) this year, but they showed more resistance during the recent sell-off. We believe that fundamentally Gazprom should be trading without a premium to Transneft.|
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|Full company name||Transneft Public Joint Stock Oil Transporting Company|
|Country of risk||Russia|
|Country of registration||Russia|
|Industry||Oil and gas|