Success for new sector despite 'difficult' debut for O1 Properties
21 September 2016
O1 Properties printed the first ever syndicated international deal from the Russian property sector on Tuesday. While lead bankers acknowledged it was not an easy deal, the issuer was able to increase from the planned $300m to $350m.
“It was a very difficult transaction,” said Andrey Solovyev, global head of DCM at VTB Capital. “They’re a debut issuer and the real estate and property sector is not a favourite of international investors. This was also the very first Eurobond from Russia in this sector.”
Leads Credit Suisse, Goldman Sachs, JP Morgan, Raiffeisen Bank and VTB Capital arranged an extensive roadshow to introduce O1 Properties to investors. Meetings kicked off in Moscow the week before the global roadshow began. Solovyev explained that Russian investors are playing actively in the Eurobond market so securing support from Russian investors was a good strategy as it helped to give international investors greater confidence to come into the deal. Meetings were then held in Europe.
As O1 Properties does not have any direct comparables, finding a starting price for the bond was a challenge for the leads. Single B Russian issuers from other sectors were considered by investors, as well as some Chinese property names, though this was not a strategy endorsed by the leads.
“There are no direct comparables from Russia and the first pricing indications were all over the place, from high 7% to 11%,” said Solovyev. “We wanted to shy away from Chinese developers as they are paying huge yields.”
An 8% handle was decided upon and initial price thoughts were circulated on Tuesday morning at 8.5% area. By 12pm London time the order book stood at $500m, but pricing was unmoved at guidance. The deal was launched midafternoon at 8.5% with the size at $350m. The final book was over $600m.
“We ended up with $350m which a comfortable but not a huge level of oversubscription,” a banker on the trade said. “I’d definitely call the deal a success, it’s a very long process with debut issuers and there wasn’t 100% certainty around this trade. The rally in the last two or three months has helped, it’s definitely a trade for a boom market.”
Solovyev spotted the bond at par on Wednesday morning though a banker away from the deal said he spotted the bonds 15bp20bp wider on the bid side.
An EM investor said yesterday that pricing on the deal looked attractive.
O1 Properties, rated B1/B+, is an investment company focused on commercial real estate in Moscow. It owns high end tower blocks housing companies like PwC, Deloitte, and Goldman Sachs which owns 12% of the business.
"O1's B1 rating reflects risks related to elevated leverage profile with a high reliance on secured debt and its singlemarket concentration in Moscow particularly amid the current challenging economic environment in Russia,” said Ekaterina Lipatova, a Moody's assistant vice president and analyst, said in the agency's inaugural ratings report on September 2. “These risks are only partly compensated by the company's competitive position with a large highquality office portfolio, strong tenant base, and balanced lease terms as well as a sound liquidity position.”
Moody's said it expected that the adoption of a more conservative financial and development policy, as well as market stabilisation, will result in a gradual deleveraging to net debt to Ebitds of below 9 times.
European investors took 29%, Swiss 13%, UK 13%, Russia 28%, Asia and MENA 2%. By investor type, Asset and fund managers took 52%, banks 34% and private banks 14%.