Russian’s Rosneft goes for $42 billion pension funds
Russia’s Rosneft, world’s largest oil producer, is seeking a $42 billion loan from a fund earmarked for Russian pensions to help it weather Western sanctions imposed over Moscow’s role in Ukraine. The money would be derived from the National Wealth Fund used to plug deficits in the pension system, to buy $41.6 billion of Rosneft bonds.
It was one of the several proposals for the Russian state to help firms hit by US and European sanctions over Moscow’s annexation of Crimea in March and role in subsequent fighting in eastern Ukraine.
It is believed that Rosneft’s long term prospects had been hurt by the sanctions. Rosneft has been entering into a series of advance sales agreements to obtain capital for long term investments rather than borrowing from banks. A number of international oil companies and China have provided finance for its investment in opening new oil fields and building pipelines to China. While such advance sales are not explicitly part of the sanctions regimens, the oil trader Vitol has shelved a $2billion deal that it was negotiating with Rosneft – a wakeup call that may have led them to turn to pension funds.
Most of the $86 billion fund, built up from oil revenues to help finance a growing state pension deficit, has been invested in infrastructure projects to try to boost the economic growth that drove Putin’s popularity during his first decade in power.
Sanctions taking toll
In a further sign sanctions were taking their toll, gas giant Gazprom, which supplies Europe with a third of its gas needs, reported its first year-on-year loss since 2008, even though it is not directly targeted by the US or EU restrictions.
The gas pipeline monopoly, which has cut supplies to Ukraine, could end up reducing supplies to Europe as well due to growing international tension over pro-Russian separatists fighting government forces in eastern Ukraine.
Russia relies on energy for half its budget revenues and needs dozens of billions of dollars to sustain production from new tight oil reserves and Arctic deposits to finance Putin’s soaring military and social costs.
Rosneft head Igor Sechin, also targeted individually by US sanctions, said the company needed the money to help it cope with a ban on US credits and loans with a maturity longer than 90 days, which European banks and investors have joined.
US and European sanctions have drastically limited access to Western banking money and modern oil technology while not targeting current production.
Debt markets have been shut for all Russian companies from July, regardless of whether they have been directly targeted.
Rosneft borrowed $55bn to purchase the minority shareholders’ holdings in TNK-BP. Its debts at the end of June 2014 were estimated at just under $42 Billion. The company needs to repay $12 billion by year-end and another $17 billion in 2015. But it can generate enough cash to repay those debts. However, the flight of capital from Russia following the sanctions means that there will be no funds for further investment in Rosneft’s ambitious development schemes.
In 2013, Rosneft said it would need $0.5 trillion to develop Russian Arctic fields. Analysts from Merrill Lynch said the Arctic programme had long been seen as one of the bright spots of Russia’s future economic development. However, some $800 billion of direct investment and the multiplier effect on the Russian economy from tapping huge offshore and tight oil resources is now at risk.
What’s Africa doing with its pension fund?
To date, African pension reform has been more successful at amassing capital than deploying it. It is estimated that sub-Saharan Africa’s ten largest pension fund markets held approximately $310 billion in assets as at the end of 2013. Of these countries, South Africa is by far the largest with assets of some $252 billion or about 80 percent of the total. But the strongest growth is coming in countries like Botswana, Ghana, Kenya, Nigeria and Uganda. Conservative projection say that pension fund in sub-Saharan Africa’s six largest markets will balloon to $622 billion by 2020.
Can Nigeria’s $26 billion pension funds be the missing puzzle in energy infrastructure?
The Senate and the House of representatives had respectively passed the new 2014 Pension Reform Bill which also accommodates employees of private firms in the Contributory Pension Scheme. Nigeria has also increased the limit for pension funds’ investment in equities to 50 percent from 25 percent of assets in November 2012 to help boost trading in stocks. As an additional investment outlet, infrastructure funds could take as much as 15 percent of pension assets.
Nigeria needs at least $14 billion annually to bridge its infrastructure gap, according to Ngozi Okonjo-Iweala, finance minister.
A major slice of pension assets are now in government bonds. Nigeria plans to amend investment rules to channel more of the country’s $26 billion of pension funds into corporate bonds, Nigeria Pension Commission Director-General Chinelo Anohu-Amazu said.
“Whether it is power, real estate, roads, railway, all sorts of infrastructure, we are interested in the format in which the pension funds go into these projects,” Anohu-Amazu said.
It is imperative to critically examine investment opportunities in the pension industry in order to grow infrastructure, which is a key driver of sustainable growth in Nigeria. The country can tap into the pension fund for the building a network of gas pipeline, refineries and other energy infrastructure that can fast track Nigeria’s quest for energy security.
However, the overriding objective should be that the retired workers receive their payments when due.
FRANK UZUEGBUNAM