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Shunned by Western Creditors, Gazprom Turns to Bigger Chinese Banks

OWoN: This is comical. The Western sanctions actually curtail western banking flows through Letters of Credit which cause the Chinese bankers to grow. What a mess! Clueless Chumps in Washington are dismantling their own Empire. Why are so many Forrest Gumps in Office?

Beijing is trying to open its capital markets, and lending to foreign institutions is par for the course - Image: ITAR-TASS / Barcroft Media

Shunned by Western Creditors, Gazprom Turns to Bigger Chinese Banks

Sanctions have cost US and European banks a major client

Russian Insider
via Forbes
By Kenneth Rapoza
22 October 2014

Russian state owned oil company Gazprom is turning to China for foreign sources of capital now that the U.S. and European financial markets are closed to them.

Gazprom said in a press release posted on its website today that it was in talks with the behemoth Industrial and Commercial Bank of China Bank of China for funding. The statement did not say whether funding would be provided, however.

This has been quite the week for China-Russia relations. Li Keqiang was in Russia earlier this week to discuss deeper economic integration. Energy remains front and center. But integration is occurring beyond oil and gas deals. For instance, the Bank of Russia announced a deal with the Moscow Exchange to trade currencies and create forex derivatives contracts between the two markets. Russia is aching to settle business in Chinese yuan, partly in a snub to the Western powers, and partly out of necessity because of Western sanctions.

Last week, BNP Paribas BNP Paribas said it was no longer offering letters of credit to sanctioned Russian banks dealing with commodities traders. BNP Paribas has run afoul of European Union sanction law in the past, and was fined heavily for it.

Both the U.S. and European Union banned its banks from providing Russian companies with financing beyond 90 days.

Like all modern companies, reliable credit lines are imperative to running a business. Russian banks can only handle so much.

Gazprom is Russia’s most important company. Not only is it drilling for most of the oil Russia discovers, but its cash flow generation is imperative to a healthy Russian government balance sheet. The company has lost over $20 billion in market cap over the last several months due to sanctions. In late June, the U.S. and E.U. banned its energy companies from conducting any business related to exploration and development of Russian hydrocarbons. Gazprom’s international partners forced to sit on their hands, but Gazprom does not have the luxury to wait. It needs capital, and its most reliable source of low cost funding is presently unavailable.

So the company hosted a meeting between Alexey Miller, Chairman of Gazprom, and Jiang Jianqing, Chairman of the Board of Directors, Executive Director of Industrial and Commercial Bank of China (ICBC) in an effort to remedy the situation. On the table were discussions on building a new relationship between Gazprom and ICBC, which would include trade and corporate credit, issue of Gazprom bonds priced in the Chinese currency as well as the creation of a ruble-renminbi payment system for oil and gas transactions between the two countries.

Gazprom is a hefty borrower. Banks love big multinationals with government banking, especially those in what is arguably the most important sector of the world economy: energy. But sanctions may have cost some U.S. and European banks a major client.

“Sanctions are stupid,” Russian president Vladimir Putin said in Moscow recently during an investor conference called Russia Calling. ”The U.S. and European Union are shooting their own companies in the foot.”

Gazprom ended 2013 with over 2.4 trillion rubles ($615 bllion) in long term debt and 1.4 trillion rubles in short term debt. Around 80% of Gazprom’s long term financial obligations are in low cost dollar and euro loans. Foreign banks account for around 75% of Gazprom’s short term loans.

China is the perfect source for financing.

Beijing is trying to open its capital markets, and lending to foreign institutions is par for the course. Gazprom make for a solid borrower, with tons of collateral in the form of gold…black gold that is. For Gazprom, Chinese interest rates aren’t as low as what Western banks can offer. But they are still more attractive than Russian banks. China’s benchmark interest rate is 6%, while Russia’s rate is 8%.



  1. China launches new World Bank rival

    China and India are backing a 21 country $100 billion Asian Infrastructure Investment Bank (AIIB) to challenge to the World Bank and Asian Development Bank.

    Memorandum of understanding were signed with 21 Asian countries in Beijing Friday. Australia, Indonesia and South Korea were absent following hidden pressure from Washington.
    The development bank was proposed a year ago by Chinese President Xi Jinping, and is to offer financing for infrastructure projects in underdeveloped Asian countries.

    Headquartered in Beijing, former chairman of the China International Capital Corp investment bank Jim Liqun, is expected to take a leading role.

    The bank will initially be capitalized with $50 billion, most of it contributed by China. The country is planning to increase authorized capital to $100 billion. With that amount the AIIB would be two-thirds the size of the $175 billion Asian Development Bank.

    India will be the second largest bank shareholder though Kuwait, Qatar, Mongolia, Kazakhstan, Pakistan, Nepal, Oman, and all the countries of the Association of Southeast Asia, except Indonesia are involved.

    Australia, Indonesia and South Korea did not participate following US claims of ‘concerns’ about a rival to Western-dominated multilateral lenders.

  2. This should bode well for the declining Ruble.


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