Exclusive: Rosneft could raise $10 billion bonds for TNK-BP deal

Russia's Rosneft could raise as much as $10 billion on bond markets to finance its takeover of Anglo-Russian oil firm TNK-BP , potentially matching loans backed by future oil exports.

Bankers familiar with Rosneft's plans to finance the $55 billion deal to buy Russia's No.3 oil firm say the state-controlled oil major was strongly encouraged by high investor demand for a recent $3 billion bond offering.

Demand for the two-tranche Eurobond deal last month topped $20 billion, but Rosneft decided to limit the size, leaving investors clamoring for more, three financial sources familiar with the matter told Reuters.

"They can do a very large transaction in public markets," said one source acquainted with Rosneft's financing plans, adding that a multi-tranche deal of up to $10 billion could be launched before the deal's expected closing in early 2013.

Rosneft declined to comment.

Rosneft is paying relatively low interest on its most recent Eurobonds - 3.1 percent on $1 billion in notes due in March 2017 and 4.2 percent for $2 billion in bonds maturing in March 2022.

It is also talking to oil majors and traders including Shell , Total and Glencore to raise up to $10 billion, secured against future oil exports, sources have told Reuters.

The takeover would create the world's top listed oil firm by output, pumping the equivalent of 4.6 million barrels per day, twinning TNK-BP's cash-generating prowess with Rosneft's deep reserves of oil, which are sufficient to last a quarter of a century.

TOTAL CONTROL

In Russia's largest-ever acquisition, Rosneft will buy out British oil major BP's half stake in TNK-BP for $17.1 billion in cash and 12.8 percent of its own shares.

CEO Igor Sechin this week signed a binding deal to buy the other half of TNK-BP for $28 billion in cash from a quartet of Soviet-born oligarchs represented via the AAR consortium. Full payment is to be made on closing.

The outright takeover will secure a windfall of TNK-BP dividends that have gone unpaid this year, while the target's low debt level would give the merged business a better credit standing than Rosneft's alone.

Even now, Rosneft's borrowing costs are already well covered by cash flows, with a net debt to core profit ratio of 0.91 on an annualized basis.

In its recent Eurobond prospectus, Rosneft said it would be able to draw on over $15 billion in existing cash resources at Rosneft and TNK-BP, covering a third of the $45.1 billion cash component of the takeover.

Rosneft also said it had received a commitment from a syndicate of international banks to lend it approximately $30 billion, including up to $7.5 billion in long-term financing.

In addition to the Eurobond program of up to $10 billion, Rosneft still has the capacity to borrow $2.4 billion from a $3 billion rouble bond issuance program, the prospectus added.

So-called off take finance is also mentioned: Rosneft has raised significant funds in the past in this way, including a $15 billion loan from China in 2009 as part of a major deal to pump oil via a new Siberian export pipeline.

Sechin, for his part, has highlighted possible non-core asset sales to help fund the TNK-BP, including Rosneft's minority stake in the Caspian Pipeline Consortium, which ships oil from Kazakhstan to the Black Sea.

Bankers say Rosneft could end up raising more cash than necessary to close the TNK-BP deal, which would help it cover the cost of launching new fields in the Arctic and a $25 billion program to upgrade its oil refineries.

The final size of the syndicated loan could exceed the $30 billion named in the prospectus, with $35-$40 billion potentially on the table from Western banks, and Russian banks also likely to chip in.

"The company did a road show, and it received commitments from bankers that exceed its financing needs," said a second source familiar with Rosneft's discussions with bankers.

"Bankers are queuing up, there is so much commitment and willingness to participate. I've never seen anything like it. They are fully covered from the western banking community."

Given investor demand for Rosneft exposure, syndicated bridge financing could be quickly refinanced into longer-term arrangements, bankers say. "The syndicated loan won't be out there for long," the first source said.

(Writing by Douglas Busvine; Additional reporting by Megan Davies and Oksana Kobzeva; Editing by Will Waterman)