Gazprom headquarters in Moscow. Gazprom has about $4bn in foreign-currency debt maturing over the next 12 months, according to data compiled by Bloomberg.
Bloomberg
While OAO Gazprom sold dollar bonds after offering an interest rate three times as big as peers, investors are skeptical many more Russian companies will follow.
“It’s unlikely we’ll see a flurry of deals from Russia,” Yerlan Syzdykov, who helps oversee $5.4bn as head of emerging-market and high-yield bonds at Pioneer Investment Management in London, said by e-mail yesterday. “Companies that need to raise money will struggle to attract capital, while those companies which don’t need the cash urgently will balk at the cost of funding.”
Gazprom, the first Russian company to sell benchmark-sized foreign-currency debt since June, offered a 4.3% coupon for the $700mn of November 2015 securities, almost 3 percentage points more than the average rate on 141 issues of similar debt, according to data compiled by Bloomberg. Unlike OAO Rosneft and OAO Sberbank, the gas producer has avoided sanctions stemming from the crisis in Ukraine.
The European Union this week added to warnings from the US and Germany that Russia risks more penalties over the conflict amid reports of escalating violence between Ukrainian troops and pro-Russian separatists. Ukraine began a large-scale offensive in the east, news agency RIA Novosti reported yesterday, citing Andrei Purgin, deputy premier of self- proclaimed Donetsk People’s Republic. The Ukrainian government said its forces were shelled by separatists last night.
Gazprom has about $4bn in foreign-currency debt maturing over the next 12 months, according to data compiled by Bloomberg. Its notes carry the highest coupon among all similar- maturity dollar bonds sold by companies with the same credit rating over the past year, the data show. The next-highest coupon is on the 2.75% 2014 notes sold by Turkey’s Yapi Ve Kredi Bankasi AS in January.
Russian companies, which have $44bn of debt coming due in the remainder of this year according to central bank data, are looking for alternative ways to refinance.
Gazprom last month agreed with Industrial & Commercial Bank of China to consider a bond sale in offshore yuan. OAO Lukoil, Russia’s second-largest oil producer behind Rosneft, was seeking to borrow $1bn through a pre-export finance facility this year, but postponed the plan, according to people with knowledge of the deal this week, who asked not to be identified because they’re not authorized to speak about it.
Public relations executives at Gazprom and Lukoil both declined to comment on future debt plans when contacted yesterday by phone and e-mail.
The squeeze on overseas credit may worsen as expanded sanctions could rid anyone of the desire to buy the risk, Egor Fedorov, an analyst at ING Groep NV in Moscow, said by e-mail November 5.
“There was a lot of uncertainty in the market if this bond transaction is affected by the sanctions, therefore we didn’t participate,” Clemens Hansmann, a money manager at Gutmann Kapitalanlage AG in Vienna, which oversees €7bn ($9bn) of assets, said by e-mail.
Such concerns didn’t scare off all foreign investors. The Gazprom issue was three times oversubscribed with 77% of investors coming from the US and the UK, including 10% from a single US investor, two people familiar with the matter said yesterday.
“It looks as if they have tested the market and the deal was well received, so others may issue on the back of this,” Angelo Rossetto, a bond trader at GMSA Investments in London, who bought the Gazprom bonds in the secondary market, said yesterday by e-mail.
Private banks may be interested in coming to market, ING’s Fedorov said.
The average yield on Russian corporate dollar debt has climbed 141 basis points since June to 7.21% on November 5, according to JPMorgan Chase & Co indexes. That compares with an average 5.49% yield for emerging-market corporate debt, the data show. The rouble appreciated 0.3% to 46.7220 per dollar at 4:52 pm in Moscow.
Other Russian companies probably won’t follow Gazprom’s example at the moment, Sergey Dergachev, who helps oversee $10bn at Union Investment Privatfonds GmbH in Frankfurt and took part in the sale, said yesterday by e-mail. “The giants, such as Sberbank, VEB and Rosneft are sanctioned names and would face problems, while smaller names, like MTS or Vimpelcom would have to pay a much larger premium, making deals not very attractive to the issuer.”
The companies he was referring to were Vnesheconombank, OAO Mobile Telesystems and VimpelCom.
