Global investors priced out of Polyus Gold

20 Октября 2016
Strong demand from domestic investors helped Polyus Gold price a new dollar deal inside its existing curve on Wednesday, as reports circulated of imminent supply from a pair of Russian corporate giants.

The gold mining firm attracted more than $1.5bn of orders for its second global bond — a $500m long five year.

Pricing for the Reg S/144A deal started with initial thoughts of 5% area. Official guidance was subsequently set at 4.75% plus or minus 5bp and the deal priced at the tight end of the range.

Bankers on the deal said that equated to a negative new issue premium, based on Polyus Gold’s April 2020s. The latter, issued on the borrower’s global market debt in April 2013, were seen at 4.41% preannouncement.

“Even in US swaps, the extension from 2020 to 2022 would be 15bp, and Russian yield curves are still relatively steep,” said Dmitry Gladkov, head of fixed income at bookrunner Renaissance Capital. “We, therefore, see this as coming inside the interpolated secondary yield curve for Polyus Gold.”

Some investors also looked to fellow Russian corporate Norilsk Nickel for price comparison. The nickel miner’s 2022s were trading at 4.4% early this week, which syndicate officials said represented a premium of around 40bp to the new Polyus Gold issue.

“Historically, Polyus has traded 100bp or more wider than Norilsk, so this represents quite a significant repricing,” said one.

Norilsk Nickel is rated two notches higher than Polyus Gold at Ba1/BBB/BBB. The entity rating for Polyus is Ba1/BB/BB, as is the expected rating for the new bond.

Bankers on the deal also reported that investors looked to international sector comparables, such as Gold Fields and Ashanti Gold, for price discovery.

For some international buyers, however, the final yield of 4.7% proved too tight. “Some non-Russian investors stepped away when we tightened pricing,” said Andrey Solovyev, global head of DCM at bookrunner VTB Capital.

“Domestic investors were less price sensitive and as a result, nearly half of allocations went to Russia.”
Russian accounts took 48% of the deal, while 14% went to continental Europe, 13% to Switzerland, 12% to the US, 9% to the UK, and 4% to Asia and MENA.

Solovyev attributed the lower price sensitivity of domestic buyers partly to high levels of dollar liquidity in Russia.

“Being able to buy familiar names in dollars was therefore very welcome for local investors,” he said. “It is also likely that these bonds will, in due course, be classified as repo eligible by the CBR, which again makes them attractive to domestic buyers.”

Despite the predominance of domestic investors in the book, Gladkov noted that the deal attracted interest from some accounts new to both the credit and the jurisdiction.

“We had orders from investors that had never invested in Russian corporates before,” he said. “They were happy to take first timerisk, because they liked the credit metrics, the pricing and Polyus’s global role and position.”
Proceeds from the new deal will be used by Polyus Gold to refinance debt with maturities out to three years. JP Morgan and Sberbank acted as bookrunners along with Renaissance Capital and VTB Capital.

Further corporate supply from Russia could be on the cards in the near future, after reports emerged that Gazprom and Lukoil will look to issue in the next few weeks.

Gazprom will start meeting investors on November 7, ahead of a potential eurodenominated deal, according to Russian media. The statecontrolled energy firm is also understood to be looking for Swiss franc funding.
Leads were reported to have been chosen for both deals, but representatives of the banks named refused to confirm the claims.

Meanwhile, Russian media also suggested that Lukoil will tap the dollar market for at least $1bn in the next two to three weeks.

Solovyev said further transactions from Russia would “certainly” emerge over the next few weeks.
“As we get closer to December, however, the activity on the debt capital markets will subside,” he added. “Investors in Russian risk have already had a very good year and as they get closer to yearend, they will likely become a bit more cautious and less aggressive in buying Russian assets.”

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