Raising EUR 3.9 billion is the ultimate step required to launch the Nord Stream gas pipeline construction

Stanislav Bozhenko

Stanislav Bozhenko, Uralsib

The debt funds provided to Nord Stream AG witness a favorable situation on the external debt markets. International credit agencies’ attention to the company is obviously whipped up by the fact that the Nord Stream project is aimed at energy saving on European markets, and by a robust shareholding structure of Nord Stream.

We believe it will be easy for the company to raise the remaining amount of the project finance. At the moment, liquidity on the international capital markets is quite high and quality borrowers, that Nord Stream may be attributed to, are demanded by lenders.

Alexey Bulgakov

Alexey Bulgakov, Troika Dialog

It is a common practice to raise funds for delivery of large stand-alone projects within the project financing scheme. This is also facilitated by the project’s status as a joint venture with a group of Western European partners. Stand-alone financing of projects makes it easier to estimate the economic indicators and the volume of resources to be contributed by each partner or borrowed from external financial organizations. Moreover, such financing allows Gazprom to save its own resources during the project development.

Gazprom and its partners seem to have managed to raise funds at rather low interest rates. First of all, we think, this is explained by the credibility of Gazprom as the major shareholder. Another reason is the Trans-European Network (TEN) status assigned to the project and its significance for economic advancement of several Western European countries (for instance, Germany).

The remaining funds for the project are likely to be provided by the parties already engaged in its financing with the use of identical borrowing instruments. The global financial crisis is likely to have come to an end and a new wave of crisis will not be encountered in the middle term, therefore Nord Stream will not be short of financing until the gas pipeline completion. Nevertheless, it should be noted that successful servicing of the acquired debt will demand the project commissioning at the earliest possible date.

Paul Corcoran

Paul Corcoran, Financial Director, Nord Stream AG

Raising EUR 3.9 billion is the ultimate step required to launch the gas pipeline construction. Debt financing will cover 70 per cent of the project costs while the remaining 30 per cent will be provided by the project shareholders. Thus, there is now everything in place to start the pipeline construction this April.

The interest rates being proposed by banks at the moment are somewhat higher than two years ago. At the same time, owing to lowered prices we have managed to save costs when purchasing pipes for the pipeline’s second string. As a result, the Nord Stream project is on track and within budget. Fundraising was facilitated by such robust shareholders as Gazprom, E.ON, BASF and Gasunie, and supported by export credit agencies.

Once the funds are obtained for constructing Phase I of the project, we are planning to seek the required financing for Phase II in the amount of some EUR 2 billion. We hope this process will be much shorter as the bulk of the work, for instance the due diligence, as well as development of the necessary documentation, has already been finalized. We expect that most of the banks taking part in the Nord Stream Phase I financing will also agree to join Phase II, but it will depend on the market behavior. In addition, we expect interest rates to decrease due to gradual market revival.

The opinions expressed in this section may not necessarily coincide with the official position of Gazprom