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. Last Updated: 07/27/2016

LUKoil Poised to Float Corporate Bond Issue




Oil giant LUKoil will float the first issue of its corporate bonds for trade on the MICEX stock exchange Thursday, officials said.


The LUKoil corporate bonds, which Western investors can buy with proceeds from domestic debt that the government restructured earlier this year, will be the first of their type to hit Russian trading floors.


"The volume of the bond flotation will be worth 3 billion rubles [about $120 million]," said Alexandra Yerofina, head of LUKoil Reserve Invest's stock market department.


The oil company is expected to float 3 million bonds at a nominal price of 1,000 rubles for a period of one month. The bonds have a biannual coupon payment of 6 percent and are hedged against ruble devaluation.


Although the bonds will be available to all on open subscription, the bond issue is part of the restructuring scheme aimed at foreign holders of frozen Russian securities. Under the debt revamp plan unveiled earlier this year, 10 percent of non-resident's ruble debt is to be converted into cash for repatriation, corporate bonds or equity in leading Russian companies. The remaining 90 percent is to be swapped for new state securities.


Other Russian blue chips such as natural gas monopoly Gazprom and the Tyumen Oil Co. have applied for corporate bond issues with the market regulator, the Federal Securities Commission.


Gazprom's plan hit a snag last week when the commission sent its bond proposal back for further clarification.


Analysts say the corporate bonds could be one of the safest bets for foreign investors stung badly by the miserly returns of the debt restructuring plan and say the ruble devaluation hedge shields investors from the consequences of further financial upheaval.


Although the coupon is to be paid in rubles, it will be indexed against the official exchange rate on the day of offering, LUKoil Reserve Invest director Igor Sherkunov said in a recent interview.


He added that LUKoil export revenues were rolling in sufficient quantities to make any danger of default on the bonds out of the question.