On March 31, Rosatom announced that it is considering the issuance of Eurobonds, and attracting other foreign currency loans, to fund its nuclear power plant projects (NPP) outside of Russia. This would be the first time that Rosatom as a parent company has entered the Eurobond market. It will look to Chinese lenders as well as U.S. and EU banks and institutional investors. Since Rosatom itself is not sanctioned by the U.S or EU, this giant Russian state-owned enterprise (SOE) hopes that its ‘‘‘independent‘ issuance of Eurobonds will not be rejected by Western lenders and investors, in part, out of fear of punishment by Western regulatory authorities.
Earlier in March, Moscow began preparing the issuance of a 10-year sovereign Eurobond for $3 billion, the first attempt to issue such a bond since the invasion of Ukraine and annexation of Crimea. The U.S. government quickly warned the six U.S. banks named against participating in the offering. All of them pulled out of the deal.
EU regulators also warned its banks and institutional investors against participating in the offering for essentially the same reasons. Russia has not yet been able to line up a lead manager for the offering with only two of the two-dozen Western banks invited remaining interested. Not surprisingly, Chinese lenders have continued to express a willingness to join the deal despite the rejection by Western banks and investors.
The individual Rosatom debt offering could provide U.S. and EU lenders with enough maneuvering room to circumvent possible regulatory hurdles. Naturally, by virtue of being a state-owned company, the proceeds of any Eurobond could be sluiced directly into the Kremlin‘s coffers or to other Russian SOEs in need. Ironically, Rosatom‘s bond offering does as much to undermine the current sanctions on Russia as the earlier sovereign bond attempt.
In short, Rosatom issuing Eurobonds is distinct from other energy majors raising funds through debt issuances of this kind. Rosatom is a soft power projection tool of the Kremlin, often with a strategic agenda more geared towards gaining long-term political leverage over smaller states on Russia‘s periphery (including NATO members) and beyond. It is important to recall, for example, that the interruption of the Russian supply of nuclear fuel to Ukraine‘s 15 reactors was briefly held out by President Putin and Deputy Prime Minister Rogozin as an intimidation-oriented penalty for Kiev‘s Western-leaning policy decisions with respect to the EU and other matters in March 2014.
Accordingly, those prospective Western lenders/investors prepared to participate in a Rosatom bond offering should be mindful of the fact that they (and their shareholders) would be deciding to help underwrite a ‘‘‘weaponized‘ Russian SOE as surely as if they were purchasing the debt instruments of Gazprom.