These are strange times in the corporate bond
markets. Gazprom, Russia's largest natural gas company, is
hardly the most transparent of issuers and it is also only B+
rated. Yet it was one of only three corporate issuers
worldwide to get a deal of $500 million or more away last
month.
At the beginning of the month Gazprom issued its second Eurobond
of the year - a seven-year $500 million issue through CSFB and
Salomon Smith Barney.
| Corporate issues $500 million
equivalent or above, Oct
2002 |
| Issuer |
Ann
date |
Currency |
$mn |
Bookrunner |
| BHP Billiton
Finance |
Oct 1 02 |
e |
737.608 |
Barclays Capital, BNP
Paribas, Deutsche
Bank |
| IEB Finance |
Oct 2 02 |
e |
1,240.855 |
Deutsche
Bank |
| OAO Gazprom |
Oct 8 02 |
$ |
500.000 |
CSFB, Salomon
Brothers |
|
|
| Source: Dealogic |
Speaking at an investor conference in New York, Gazprom CFO Boris
Yurlov said he hoped the Eurobond would get pricing comparable to
the company's inaugural $500 million issue in April, which was also
launched through CSFB and Salomon Smith Barney. That
four-and-a-half-year deal had a coupon at launch of 9.125%. In the
end, the $500 million bond had a coupon payment of 10.5% and was
sold at par, which was quite cheap, given that the bond has a put
option exercisable from October 2005.
Yurlov also said that the aim had been to increase the maturity
to seven years and to attempt to increase the size of the bond.
Indeed, it was increased to $500 million from $400 million, the
company's previous target. But there was so much demand that the
company issued a $200 million tap at the end of October, launched
at 100.625 to yield 10.37%. This was also good news for Salomon,
which suffered a blow when Tyumen Oil cancelled a $500 million deal
when PricewaterhouseCoopers had to restate its audit. It has now
relaunched a $400 million five-year deal for Tyumen Oil and has
been bookrunner on six of the 10 international bond issues from
Russia this year.
Gazprom had been working on several Eurobonds this year but
Yurlov said it is not planning more international issuance before
the year-end as it does not need the money. Instead, it is now
turning its attention to its R5 billion ($473.6 million) domestic
three-year bond with a one-year put option. Renaissance Capital
says the deal is on track for late November and will be issued
through Renaissance Capital and St Petersburg's Industry &
Construction Bank.
If this size is achieved, it will be the biggest ever domestic
corporate bond launched in Russia since the birth of the country's
"real" domestic corporate bond market in 1999. Given that the
average size of domestic corporate bonds has until recently been
$10 million to $15 million, it will test an extremely shallow
investor pool and, if successful, will provide a much-needed liquid
benchmark for the market.
When Euromoney asked whether the domestic market could develop
the capacity to meet more of Gazprom's financing needs, Yurlov was
optimistic: "The development of the Russian corporate bond market
for us is very promising," he said. "I think we and other major
Russian companies could borrow significantly more domestically and
lower our costs. We have a long-term programme in roubles and we
are going to do more here."
The October Eurobond and the November domestic bond will also
advance Gazprom's strategic aim of replacing its expensive
short-term debt with medium- and long-term financing.
According to Renaissance Capital, Gazprom's maturing debt this
year is $7.5 billion but this is already covered by cashflow of
$3.4 billion, the $2.2 billion of debt the company has already
raised this year and $2 billion in free cash. Renaissance argues
that Gazprom can cover its maturing debt without raising the $1.5
billion in the pipeline before the end of this year. Yurlov also
said the company would now be looking only at attracting additional
long-term debt financing for specific projects, and that project
financing was one attractive option.