PIK Plans First Bond Sale Since 2005 to Fund Housing Projects

PIK Group (PIKK), a Russian real-estate developer, may sell bonds for the first time since 2005 as housing construction picks up and the company seeks to diversify its funding sources.

The sale may come as early as this year, depending on market conditions, Chief Executive Officer Pavel Poselyonov said in a June 21 interview in St. Petersburg. The company raised $330 million in a secondary share offering on June 7.

“The company should diversify its debt portfolio,” said Poselyonov, “as it won a positive credit rating.”

PIK is seeking to strengthen its balance sheet as home building in Moscow, its main market, doubled in the first quarter, demand for new flats rose and prices are set to grow about 10 percent this year, Poselyonov said.

PIK will use at least $160 million of proceeds from the secondary offering to reduce its 43 billion rubles ($1.3 billion) in existing debt, Poselyonov said. The company is also in talks to extend bank loan payments as it has to pay about 35 billion rubles, including 25 billion rubles to OAO Sberbank (SBER), its main creditor, in 2014, Poselyonov said.

PIK was rated A+, the nation’s highest level, by the Moscow-based National Rating Agency for the first time, it said in a statement on its website on June 19.

Debt Ratio

The company, which improved its debt-to-equity ratio from 7.2 to 3.5 in 2012, would benefit from using cheaper bonds over bank loans, said Marat Ibragimov, an analyst for UralSib Financial, by phone from Moscow.

The St. Petersburg-based OAO LSR Group (LSRG), Russia’s biggest publicly traded real-estate developer and builder by market value, sold 3 billion rubles of bonds in April, with a coupon of 10.15 percent. That compares with loan rates of as high as 11 percent, said Yuri Ilyin, the director of corporate communications, said in an interview on June 14.

PIK will also use funds from the secondary offering to buy land for development projects, though the company’s existing holdings are large enough to keep the company working at least 10 years without new acquisitions, he said.

“We’re looking at fast and extremely high-profit projects to improve our financial performance,” he said, declining to be specific because PIK is in talks with land sellers.

To contact the reporter on this story: Anatoly Temkin in St. Petersburg at atemkin@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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