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.
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.