Russian duo stun with market openers
By Sudip Roy LONDON, Oct 9 (IFR) - The rarity value of non-sanctioned Russian issuers was made clear this week after two of the country's leading companies reopened the bond market with remarkable results. No Russian issuer had sold a benchmark-sized deal in the international market since Gazprom printed a US$700m one-year note last November. But on Tuesday, miner Norilsk Nickel broke open the US dollar market, while on Thursday Gazprom became the first Russian borrower to issue in euros in more than 15 months. The deals blew away fears that investors would steer clear of new Russian paper, with Norilsk receiving US$4bn of demand for a US$1bn seven-year trade. Gazprom has yet to release order book details but its 1bn three-year bond exceeded expectations. While the deals don't mean there is a wholesale opening for Russian issuers, they prove the best ones have access. "Sanctions have created rarity value for non-sanctioned names," said a banker close to the Norilsk deal. "Investors do want exposure to Russia but there's a much smaller universe of issuers to choose from." "There are still some concerns but for the right credit there will be demand," he added. One investor told IFR that he was still underweight Russia, but was reducing that position as the country's economy has shown signs of stabilizing despite the state of commodity prices. That change in sentiment has been reflected in the performance of Russian assets as emerging markets investors have rotated out of more troubled economies, such as Brazil and Indonesia, to Russia. The sovereign's five-year CDS, for example, has tightened by more than 200bp this year. As it is increasingly hard to buy decent chunks of Russian paper in the secondary market, where it is often tightly held by locals, new issues provide international investors with the best way of rebalancing their portfolios. There has also been a significant amount of redemptions and coupon payments from Russian issuers, adding to investors' coffers. This pent-up demand enabled both corporates to issue at much tighter than expected levels, and as important, their deals to trade up in the secondary. STUNNING RESULTS Leads on both began conservatively offering relatively high new issue premiums, which allowed the books to build momentum. As demand grew, they were able to ratchet in guidance. The end results were stunning. Norilsk Nickel (Ba1/BBB-/BBB-) paid roughly a 37.5bp new issue premium, pricing its deal at a yield of 6.625% after starting in the 7% area. "It's a great result when you consider the fact that developed markets are printing with similar," said a banker away from the deal. Gazprom, even more remarkably, came flat to slightly inside its curve - one of only very few issuers in any market to have done so in recent weeks. The state-owned energy company printed at 4.625% from initial guidance of 5%-5.125%. Gazprom (Ba1/BB+/BBB-) is a special credit in Russia and its euro curve has been well-supported, especially by locals, throughout the year. Rival bankers were amazed by the outcome especially as some were speculating before either deal that Russian issuers would have to pay at least 50bp new issue premiums. "Unbelievable," was the view of one syndicate official about the Gazprom deal. Both Gazprom and Norilsk Nickel have weathered the fall in commodity prices. Despite a slump in nickel prices, Norilsk has benefited from the weak rouble, increasing its Ebitda by 8% year-on-year to US$2.7bn for the first six months of 2015, according to financial statements. Despite their success, the deals are unlikely to presage a flurry of issuance out of the country, with bankers expecting deal flow to be spasmodic until sanctions are lifted. Instead, the greater immediate significance of the Norilsk trade lay in it paving the way for CEEMEA issuers more generally to access the market after a difficult couple of months in which few deals had been executed. The day after it printed, three other CEEMEA issuers entered the market including Ghana and Turkcell, the latter with the first corporate bond out of Turkey this year. (Reporting by Sudip Roy; editing by Julian Baker and Matthew Davies)
© Thomson Reuters 2017 All rights reserved.