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Russia & CIS

CASE STUDY: Sovcomflot Tests Waters With Eurobond

Sovcomflot, one of the world’s largest shipping companies which specialised in harsh environment operations, issued a US$750mn Eurobond at a time when there was increased interest from Russian corporates in accessing the international markets alongside interest from foreign investors who were looking to gain exposure to rare Russian assets.

Sep 23, 2016 // 10:44AM

Deal At A Glance

Deal Type: Senior Unsecured Eurobond

Deal Structure: 144/A RegS

Issuer: PAO Sovcomflot

Obligor: SCF Capital Limited

Governing Law: UK Law

Listing: Irish Stock Exchange

Bookrunners: Citi, ING, JP Morgan, Sberbank CIB, VTB Capital

Joint Lead Managers: Citi, ING, JP Morgan, Sberbank CIB, VTB Capital

Legal Advisor to borrower: Cleary Gottleib Steen & Hamilton LLP

Legal Advisor to JLMs: Linklaters LLP

Size: US$750mn

Tenor: 7 years (bullet maturity)

Coupon: 5.375%

Reoffer price/yield: 5.375% 

Spread: MS+404.1bp

Date of Issue: June 2016

Use of Proceeds: To refinance existing maturities

Background

The strategy employed by Sovcomflot and the mandated lead arrangers (MLAs) in generating a strong orderbook for the Eurobond was to supplement demand from existing investors who had already tendered their notes from Sovcomflot’s existing notes with new money investors, who showed an interest due to the attractive initial price thoughts.

For price discovery, Russia’s sovereign Eurobonds and other Russian quasi-sovereign issuers such as Gazprom and RZD were referenced.

Transaction Breakdown

Sovcomflot’s Eurobond featured a very light covenant package, an unusual feature for Russian sub-investment grade transactions. 

The deal was rated BB by S&P Global Ratings, BB by Fitch and Ba2 by Moody’s.

IPTs for the transaction began within the 5.75% area, but on a strong orderbook price guidance was released at 5.625% and then further revised to between 5.375% and 5.500%.

A solid orderbook allowed the bookrunners to secure the pricing for the Eurobond at the tight end of the range, reaching the coupon rate that was targeted by Sovcomflot, which was eventually set at 5.375% on June 9.

The transaction was 2.1x oversubscribed, with a final orderbook in excess of US$1.6bn. Investors who tendered their existing Sovcomflot notes received priority allocation, but nevertheless there were anchor orders from asset managers based in the UK and US as well as in Russia.

37% of the investor base for the deal was spread across Russia, 27% originated from the UK, 22% from the US and 14% from Europe.

By type, 54% of the investor base was made up from asset managers, banks, private banks and others constituted 43% and insurance companies and pension funds made up 3%.

The proceeds of the deal will be used to refinance the company’s outstanding 5.375% 2017 notes.

Russia & CIS

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