Russia's First Eurobond in 2016 Is a Sellout in Market

  • Gazprom raised CHF500 million with 3.375 percent coupon
  • Gas producer started marketing the bond at 3.625 percent area

Gazprom PJSC, the world’s largest natural-gas producer, saw investor demand exceed four times the offer size as it tapped the Swiss capital market with the first benchmark foreign bond sale from Russia this year.

The state-run gas monopoly raised 500 million Swiss francs ($505 million) of notes due Nov. 30, 2018 with coupon of 3.375 percent, according to a person familiar with the deal who asked not to be identified because the information is private. Both new and regular investors bought the securities, Dmitry Gladkov, the global head of debt capital markets at co-manager Renaissance Capital said by phone.

“The demand was so high that even dedicated investors got zero allocation,” said Lutz Roehmeyer, director at Landesbank Berlin Investment GmbH, which oversees about 11 billion euros ($12.2 billion) in bonds. “Investors are starved for Russian paper.”

The deal comes a day after an official at the European Union said that banks wishing to manage a proposed sale of Eurobonds by the Russian government, its first since 2013, must be “mindful” of the indirect risks of violating EU economic sanctions. With U.S. and Canadian advisers unwilling to participate in the sale, Russia is yet to issue a mandate for the bond. Switzerland is not part of the European bloc.

Dwindling Sales

The yield on Gazprom’s existing bonds in the same currency due in 2019 was little changed today to 3.66 percent. The rate on its euro-denominated note due in 2018 fell 5 basis points to 3.33 percent on Wednesday. Gazprom began marketing the bond with a coupon of about 3.625 percent.

Gazprom was one of only a handful of issuers last year that collectively raised about $4 billion in dollar- and euro-denominated bonds. That was less than 10 percent of the record amount sold in 2013 before western sanctions over Russia’s role in the Ukraine’s conflict blocked borrowers’ access to international markets. Gazprom, which isn’t sanctioned, has seen its yields fall this year as appetite for Russian assets rebounded with recovering oil prices.

Deutsche Bank AG, Gazprombank JSC and UBS Group AG acted as joint lead managers and Renaissance Capital as a co-manager, following investor meetings in Geneva and Zurich on March 14 and 15.

Investors from Switzerland, as well as other countries in Europe and Asia, bought the bond, according to Ranko Milic, head of debt capital markets for the Central and eastern Europe, Middle East and Africa at UBS.

“The Eurobond window is now open for other Russian issuers in Swiss francs and in more traditional currencies such as dollars and euros,” Milic said.

As for the Russian Eurobond issue, the Finance Ministry has contacted 25 foreign and three domestic banks with requests for proposal to organize the bond sale, according to information on its website. Herman Gref, chief executive officer of Sberbank PJSC, said on Tuesday that Russia’s biggest lender is willing to buy Russia’s Eurobonds and the nation has enough liquidity to place bonds domestically.

(Corrects Milic's comment in penultimate paragraph to say the Eurobond window is now open.)
Before it's here, it's on the Bloomberg Terminal.
LEARN MORE