Gazprom creates rouble market history
Russian issuer breaks new ground on domestic turf
Russia’s GAZPROM on Tuesday sold the biggest
corporate bond in the rouble market,
illustrating the depth of local liquidity.
The state-owned oil and gas company issued
a Rbs40bn (US$650m) 8.10% note due July 2048
with a put option in July 2025. The deal priced
at par with an effective yield to worst at 8.26%,
just 54bp over the sovereign’s curve.
“It was the largest corporate deal in Russia
ever done in one go and also quite ambitious
in terms of maturity for locals. It came at a
time when local rouble markets are far from
easy, with US rates going through a degree of
turbulence,” said Dmitry Gladkov, global
HEADûOFûlNANCING ûATûRenaissance Capital,
which was a lead on the deal along with
Gazprombank, Sberbank CIB and VTB Capital.
A banker away from the deal said it
illustrated the depth of the local market. “So
much for extinguishing local liquidity,” he
said. “The local markets are incredibly liquid.”
The book topped Rbs49bn with more than
55 investors participating.
2OUBLEûlNANCINGûWILLûLIKELYûBECOMEûEVENû
more important for Russian issuers given the
growing clamour in the US for stiffer
sanctions against Russian entities and
individuals.
Gazprom is exempt from sanctions and, in
theory, is the best-placed Russian issuer to
sell international debt.
However, its strategy is complicated by a
long-running dispute with Ukrainian state-
owned Naftogaz over payments, a
consequence of the deterioration in relations
between Russia and Ukraine.
A ruling by a Stockholm arbitration court
in February was meant to conclude the
dispute.
But Naftogaz said Gazprom has not
complied with the ruling, which obliged the
Russian company to resume gas supplies to
5KRAINEûATûAûMARKETûREmECTIVEûPRICEûANDûTOû
pay a US$2.6bn settlement.
Last month Gazprom won an interim
appeal court ruling that suspends attemptsBYû.AFTOGAZûTOûSEIZEûTHEû2USSIANûlRMSû
foreign assets.
It is due to risks that the proceeds would
be frozen by Naftogaz that Gazprom stopped
plans for a potential sterling issue in June,
according to banking sources.
No formal announcement was made for
the transaction but it had long been
rumoured in the market.
Bankers say they don’t expect Gazprom to
change tack anytime soon for an
international issue. “They’re not receptive to
DISCUSSINGûSPECIlCûDEALS vûSAIDûTHEûBANKERû
away from the rouble transaction.
Another banker said Gazprom has plenty
of cash on its balance sheet so doesn’t have
an urgent need to raise funds offshore.
The company has about US$24bn of cash,
INCLUDINGûDEPOSITS ûACCORDINGûTOûAûlRST
QUARTERû
earnings presentation, of which 27% is in US
dollars and 16% in euros. Excluding deposits,
its cash holdings are about US$15bn.
Sudip Roy, Robert Hogg FRONT STORY AFRICA
Eskom hopes to lure back investors
Troubled power company hoping to regain investors’ trust
South African company ESKOM is hoping to
return to the international market for the
lRSTûTIMEûINûTHREEûYEARSûASûITûTRIESûTOûREGAINû
a footing with bond investors after a torrid
few years bedevilled by management
CRISES ûlNANCIALûLOSSESûANDûMOUNTINGûDEBTS
The beleaguered power company is
relying on a state guarantee to attract
investors for an up to 10-year benchmark
US dollar bond, while also hoping that its
REFORMûSTORYûWILLûLUREûSUFlCIENTûDEMANDû
for a possible non-guaranteed note.
Last week Eskom said it had secured a
US$2.5bn loan from China Development
Bank, which means that it has raised 62%
OFûITSûFUNDINGûNEEDSûFORûTHISûlNANCIALûYEAR
South Africa’s ruling party also wants
greater private-sector investment in the
company, and has not ruled out the
possibility of splitting up its operations.
Talk, though, is one thing, action is another
and the deal’s success will come down to how
much investors believe Eskom’s future will be
any different to its recent past, as the
company became the most visible symbol of
the previous government’s mismanagement
of the economy.
“The fear is it’s not a turnaround story,
but a solvency issue – Eskom’s emergency
R20bn bridge loan from February comes
due at the end of August in addition to
US$98.1m in coupon payments spread
over the month,” said Citigroup analysts
last week before the deal was announced.
“We expect Eurobond issuance and
;DEVELOPMENTûlNANCEûINSTITUTIONS=ûTOûCOVERû
the balance, but Eskom doesn’t have long
to pick its medicine.”
)NûITSûLASTûlNANCIALûYEAR û%SKOMûREPORTEDûAû
loss of US$175m. It already has US$20bn of
state-guaranteed debt. Drastic action is needed
for a company that has 47,000 employees.
Still, if recent secondary moves are
anything to go by, then the signs are
decent. The company’s February 2025s
have gone from a mid-8s yield to 7.76%over the past month or so - though how
much that has been driven by relative
value rather than a belief in the Eskom (B2/
CCC+) story is less clear.
It will be interesting to see what sort of
pick-up over the sovereign curve accounts
will want on the guaranteed notes. South
Africa’s September 2025s are trading at
5.05%, 50bp-55bp lower than where they
were a month ago.
“I suspect it will price ‘relatively’ tight to
the sovereign,” said Uday Patnaik, head of
EM debt at LGIM, who reckons the deal
should pull Eskom’s overall curve tighter
versus the sovereign.
The roadshow begins on Monday and
ends on Wednesday. Absa, Barclays, JP Morgan
and Standard Bank will be the lead managers.
The guaranteed notes are expected to be
rated Baa3 by Moody’s and BB by S&P. The
non-guaranteed bonds, if they happen, will
be rated B3/CCC+.
Sudip RoyEMERGING MARKETS
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