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Russia & CIS

CASE STUDY: Russia’s Severstal Hits Record Lows with 3.15% Coupon on New Eurobond

The latest Russian steelmaker to hit the Eurobond markets this year secured the best pricing of the lot with a 3.15% coupon for its 5-year notes – the lowest for any Russian private sector corporate ever.

Sep 20, 2019 // 12:00AM

Deal At A Glance
Deal Type: Eurobond
Deal Structure: 144a/RegS, Senior Unsecured
Issuer: Steel Capital S.A.
Borrower: PAO Severstal
Deal Size: USD800mn
Issue Date: 16 September 2019
Tenor: 5-year
Coupon: 3.15%, semi-annual
Price: 100.00%
Yield: 3.15%
Issuer Rating: Baa2 / BBB / BBB
Governing Law: English Law
Location: Russia
Listing: Euronext Dublin
Joint MLAs: Citi (B&D), J.P. Morgan, Societe Generale
Joint Bookrunners: ING, Sberbank CIB, VTB Capital
Legal Adviser to Issuer: Latham & Watkins
Legal for Arrangers: Linklaters
Use of Proceeds: General corporate purposes and upstream and downstream project financing

Background

Steel producers have been by far and away the most prolific bond issuers in Russia in 2019, with Evraz setting the trend back in March with a USD700mn 5-year issuance that priced at 5.25%.

Since then, NLMK (USD500mn at 4.7%) and MMK (USD500mn at 4.375%, the lowest coupon for a Russian corporate at the time) have both hit the market, and ChelPipe, a steel pipe manufacturer, is set to make its Eurobond debut in coming days (with coupon reportedly set at 4.5%).

But those previous issues have been overshadowed by Severstal’s spectacular comeback, a USD800mn issue that priced at a mere 3.15% – well below even the sovereign’s recent 10 and 16-year dual-tranche that yielded of 3.95% and 4.3%, respectively.

Transaction Breakdown

Until last spring, Severstal’s most recent foray into the bond markets happened in February 2010, with a double-bill of RUB5bn and RUB10bn local issuances at 9.75%.

In April 2019 Severstal placed two bond issues on the domestic markets for the total amount of RUB25bn, equivalent to USD380mn, with 8.65% annual coupon.

On Thursday 5 September the company began a 2-day roadshow for a new benchmark-setting USD800mn issue, visiting London, Frankfurt and New York in the process. The following Monday (9 September), the issuer launched the bookbuilding at 3.5% for the new 5-year note, which was oversubscribed 2.5x at close.

The issuer received USD2.5bn bids at peak from 175 accounts. UK investors snapped up 30% of the notes, 26% went to accounts in Europe, 8% to Asia and the remaining 5% to the US.

Strong appetite for the corporate notes allowed Severstal to tighten by an impressive 350bp to price the bond at 3.15%, 50bp outside the sovereign curve. That represented the lowest coupon not just among Russia’s metals producers, but for any Russian non-state corporate on a USD bond with this maturity.

Russia & CIS Deals

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