Russia's Gazprom, the world's largest gas producer, sold its one billion euro 10-year Eurobond at par, market sources familiar with the details of the deal said on Friday. The yield on the bond is 5.875 percent, near the top end of the revised price guidance range given at 5.75-6 percent. The yield is 255 basis points over the corresponding 10-year benchmark European government bond. Selling at par implies the coupon was the same as the yield. "Since it opened for trade in the secondary market the price went up to bid 100.25 before dipping back to 100.125," said one market source.
"The yield came in at the lower limit for us. Originally the 6 percent looked quite attractive but then there was quite a lot of positive news over the last 48 hours for the company and you can imagine a lot of pressure by the company on the syndicate to drop the yield," the source said.
For Gazprom bond holders, the cancellation of the merger with state oil firm Rosneft on May 17 and the Russian government's decision to obtain a majority stake in the gas monopoly through outright share purchases meant more cash on hand and less supply of bonds in the future. ABN Amro and CSFB are lead managers of the deal.
Gazprom is the guarantor of the bond being issued by Gaz Capital. Gazprom is rated 'BB-' by Standard & Poor's, 'Baa3' by Moody's Investors Service, and 'BB' by Fitch Ratings.
Gazprom's existing euro-dominated 7.8 percent coupon bond due 2010 was little changed following the launch of the new issue, with a bid of 113.84 and a yield of 4.793 percent. That bond is trading 191.9 basis points over the underlying six-year European benchmark bond.
The existing US dollar-denominated Gazprom bond due 2013 and carrying a 9.625 percent coupon traded down 0.50 points in price to bid 119.250, yielding 6.434 percent. That bond was 230.6 basis points over the underlying 10-year US benchmark Treasury.
Gaining a majority stake in the company in what appears to be a more simplified manner and the cash windfall that Gazprom would get was viewed as a plus for its existing, and now newest bonds.
Majority ownership would also lead to the lifting of restrictions on Gazprom share ownership by foreign investors who have a pent-up demand for one of Russia's crown jewel investments.
The cash would offset some of the debt Gazprom is expected to issue and firms up its balance sheet. Just when that cash will become available however has become an issue because it depends on the flotation of stock from former merger partner Rosneft. The government says it will all happen by the end of the year, but some analysts don't expect that to happen.
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