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30 March 2017

Gazprom makes big sterling return

Lucy Fitzgeorge Parker
Gazprom went for size with its sterling market return on Wednesday, pricing the second largest deal ever in the currency from an emerging markets borrower.
The Ba1/BB+/BBB- issuer raised £850m of seven year funding at a yield of 4.25%. That was comfortably inside initial price thoughts of 4.375%-4.5% and in line with guidance of 4.375% area.
Despite the price tightening, however, bankers on the deal reported no orders dropping from the book, which finished at £1.7bn.
The majority of allocations went to local UK investors, who took 61 % of the deal. A further 16% went to Russia, 11% to Switzerland, 11% to continental Europe, 1.5% to Asia and less than 1% to the US. In total, more than 150 accounts participated.
Andrey Solovyev, global head of DCM at VTB Capital, said leads had been particularly concerned to keep UK investors engaged during the pricing process.
“Even though some may have thought the final price was quite tight and the size quite large, they all stayed in the book,” he said.
Comparables for the deal were thin on the ground, given the lack of Russian sterling bonds outstanding.
Gazprom’s only outstanding deal in the currency, a £500m 5.338% September 2020 issued on the borrower’s last outing in the market in 2013, was trading at a cash price of around 107.5 this week, according to bankers on the new issue.
That equated to a yield of around 3.06%. Bankers away from the deal quoted a level of closer to 2.9% for the bond.
The only other outstanding Russian sterling issue is Russian Railways’ 2031s, which were trading at around 5.4% this week.
“It is very difficult to talk about fair value in the sterling market,” said a banker on the deal.
“There is a very limited number of investors, so they are able to dictate pricing.”
Bankers away from the deal were less convinced that the final level was tight. “I’d call it reasonable to fairly generous,” said one.
Deutsche Bank. Gazprombank, JP Morgan and VTB Capital acted as bookrunners on the deal, which was the largest from an emerging market issuer in sterling since Mexico’s £1bn 100 year in March 2014.
David Greenbaum, head of CEEMEA corporate and FIG bond origination at Deutsche Bank, said the trade was part of Gazprom's ongoing effort to maintain access to different pools of investors. “It is something they have been resolute about as a strategy,” he said.
Sterling is the fourth currency the Russian gas producer has tapped in the past 12 months, following issues in Swiss francs, euros and dollars.
Solovyev said the deal was unlikely to spark of rush of imitators, however. “We wouldn't expect to see a lot of names from Russia in this market,” he said. The sterling market is probably limited to a handful of top quality Russian issuers: the largest corporates and the quasi sovereigns.”
Corporate Communications VTB Capital