Russian steelmaker Evraz Group is scheduled to conclude the placement of a R20bn (US$685mn) debut local 10-year bond this week. The bonds will be issued in two tranches of R10bn.
The funds raised will be used to refinance debts. Evraz had total debt of US$8.5bn as of June 30th 2009. However, the group reacted to the credit crisis by cutting costs and investment plans, reducing debt, issuing equity and hybrid debt, and buying back some Eurobonds from the market.
The offered bonds are being issued by a local SPV (Sibmetinvest) and carry a guarantee from the Luxemburg-based Evraz Group Holding.
Senior fixed income analyst Alexey Bulgakov at Troika Dialog, one of the issue’s organisers, says: “The ongoing rally on the ruble bond market and a shortage of liquid paper with duration of 4-5 years make the issue suitable for investors anticipating a further reduction in rates on the local market.”
Bulgakov continues: “From a technical viewpoint, there are no ‘fresh’ corporate issues on the ruble bond market from any non-government company with duration of more than three years.
“There are two reasons for this. First, until recently, investors were not prepared to take on interest rate risk, and now the rapidly changing outlook for the ruble is reducing risk aversion. Second, most new corporate issues are being placed in the form of local commercial paper.”
The latter type of bond is much easier and quicker to organise, but cannot have a maturity longer than three years. This has led to a concentration of supply with maturity of two to three years. Given that the market anticipates further interest rate cuts, Troika expects substantial demand from many categories of investors for long-dated local debt instruments.
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