Russia's gas monopoly Gazprom is talking to Western banks to raise up to $10 billion to fund the purchase of the key oil unit of embattled oil major YUKOS, industry sources said on Wednesday. Gazprom, the most leveraged Russian company with over $15 billion of debt, also said it planned to cut other borrowings to fund core operations by a quarter next year to $3.9 billion, a move analysts said may hurt its gas development projects.
A source familiar with the situation told Reuters Gazprom was holding talks with Deutsche Bank and ABN Amro to raise as much as $10 billion to finance the acquisition of YUKOS' key unit Yuganskneftegaz.
"It's obvious that Gazprom's borrowings would not be limited to just $3.9 billion next year," he added.
ABN Amro said it was holding discussions with Gazprom but gave no further comment. Deutsche, which is acting as Gazprom's adviser, also declined to comment.
A London-based Russian loan specialist said market talk suggests a $6 billion syndicated bridge loan to a bond issue. Given the tight timeframe, bankers expect any loan to be unsecured.
On Tuesday, Gazprom's oil unit said it would bid on December 19 at an auction for a controlling stake of Yugansk with the starting price set at almost $9 billion.
If state-controlled Gazprom buys Yugansk the Kremlin will partly regain control over the oil industry, lost in chaotic privatisation deals in the mid-1990s, and destruct the empire of the politically ambitious YUKOS founder Mikhail Khodorkovsky.
Khodorkovsky is now on trial for tax evasion and fraud, while his company faces almost $25 billion in back tax claims, which prompted bailiffs to seek to sell the firm's main assets.
YUKOS minority shareholders, who control 25 percent of the company, have threatened to sue Russia for expropriation because they say the sale of Yugansk would destroy any residual value left in what was once Russia's most profitable company.
YUKOS's market value has collapsed to just $2 billion from a peak of over $40 billion, while buyers pile into Gazprom, whose rouble stock has more than doubled this year. YUKOS shares were down 24 percent on the RTS bourse at 76 US cents. Gazprom stock was 1.1 percent down at 80.9 roubles at 1312 GMT.
A Yugansk buy would make Gazprom one of Russia's two top oil producers with daily output of 1.8 million barrels, overtaking Saudi Arabia' Saudi Aramco as world's top hydrocarbon producer.
Gazprom's benchmark Eurobond maturing in 2013 was down 0.510 points at 114.87, pushing the yield up to 7.197 percent - up from 6.706 percent on November 25 as market players anticipated more issues to come soon. UBS Brunswick analyst Paul Collison calculated Gazprom had a total of $10.1 billion of available funds as of the end of the second quarter of 2004, including $3.5 billion of cash as well as marketable securities and unused structured export notes.
That makes the Yugansk buy feasible with additional Western financing, but leaves little cash for core gas operations, let alone billions of dollars needed to build new pipelines and put new fields onstream as output from traditional deposits falls.
Gazprom said in a statement its total investment plan would rise to 300 billion roubles ($10.71 billion) in 2005 from 225 billion in 2004, of which 150 billion would be long-term financial investment such as the purchase of Yugansk.
But capital expenditures would decrease to 150 billion roubles from 190 billion this year.
While positive for enhancing Gazprom market value, analysts said a Yugansk buy was bad news for efficiency at the state-run behemoth saddled with bureaucracy, overstaffing and waste.
"The ever increasing collection of energy assets from utility to oil and gas production is disconcerting, as it could reduce operational efficiency," Nikoil brokerage said.
Gazprom forecast its revenues to rise to 1.3 trillion roubles from a forecast of 1.09 trillion this year due to rising volumes of exports to Europe and high gas export prices.