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CASE STUDY: Gazprom Neft Gets Ahead of Central Bank Action, Attracts Real Money with Local Bond Sale

As one of the higher quality names in Russia’s domestic market Gazprom Neft managed to attract strong demand for the company’s 30-year local currency notes from large institutional investors in Russia, and achieved the lowest coupon of any Russian corporate over the past 2.5 years.

Oct 24, 2016 // 1:23PM

Deal At A Glance

Deal Type: Local Currency Bond

Issuer: Gazprom Neft

Governing Law: Russia

Listing: Moscow Stock Exchange

Mandated Lead Arrangers / Bookrunners: Gazprombank, Sberbank CIB, VTB Capital

Legal Advisors to Borrower: None

Legal Advisors to MLAs / Bookrunners: None

Size: RUB15bn (approx. US$237mn)

Tenor: 30-year (5-year put option)

Coupon/margin: 9.4% p.a.

Spread: OFZ+95bp

Date of Issue: 30 August 2016

Issue Rating: Ba1/BB+/BBB-

Use of Proceeds: General corporate purposes

Background

On 23 August 2016 Gazprom Neft successfully priced a RUB15bn 30-year bond, the proceeds of which are being used for general corporate purposes and to extend the maturity profile on its existing debt.

The bonds were highly oversubscribed, which helped the company secure among the lowest coupons for local currency notes in the Russian corporate bond market.

Transaction Breakdown

On 23 August Gazprom Neft closed the orderbook for its RUB15bn of Series BO-01 and BO-04 domestic bonds carrying a maturity of 30-years.

The bonds include a 5-year put option and pay out on a semi-annual basis.

A key objective on this deal was to attract real money accounts such as non-government pension funds, asset management and insurance companies, many of which experience a lack of qualitative long-term rouble-denominated instruments.

Given declining inflation indicators, institutional investors were extremely bullish on local paper bonds with duration longer than three years, while banks continue to seek out instruments with tenors of between three to five years.

At the same time, there was also a consensus growing in the market that the Russian Central Bank would be forced to lower key interest rate due decreasing inflation, and in order to stimulate economic growth, explained Eduard Jabarov, Managing Director, Debt Capital Markets, Sberbank CIB, who worked on the deal. The CBR delivered a 50bp cut in mid-September, just weeks after Gazprom Neft’s notes were placed on the Moscow Stock Exchange.

More than 60% of allocations were placed with institutional investors with long term investment horizon, about 30% of the notes were placed with banks, and 10% was placed with smaller local firms such as brokerage companies and other retail investors. Almost all of the orders submitted for the notes were based within Russia.

Overall, the deal was well-executed and well-timed, and saw an oversubscription rate of nearly 3X. The bond sale saw Gazprom Neft achieve its core funding objectives and allowed the company to secure a coupon of 9.4%, the lowest coupon of any Russian corporate over the past 2.5 years.

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