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. Last Updated: 07/27/2016

Tyumen's First Tranche Bonds Rake In $48M

Shrugging off the climate of political uncertainty, Tyumen Oil Co.'s first tranche of its corporate bond issue experienced modest success, placing 46.3 percent of the paper to bring in about 1.2 billion rubles ($48 million), officials said Tuesday.

Moreover, roughly two-thirds of the volume were bought Monday, the final day of first tranche placement, AK&M news agency reported. Tyumen Oil Co., or TNK, launched the first tranche July 27.

The bonds - which are backed by a crude oil export contract with Total - were offered to investors at 91.2 percent of the nominal price, providing an annual yield of 12.5 percent over the papers' first two years, TNK vice president Oleg Surkov said Tuesday in a telephone interview.

The placement price was approved by TNK's board of directors based on the results of the first tranche auction in late July. Further, the investors had 10 days to acquire the securities at the declared price.

TNK had registered for a total of four tranches, if necessary, to place all of the 2.5 million bonds in the issue, which carry a nominal price of 1,000 rubles ($39.54). The issue terms give the five-year bonds a semiannual coupon of 7 percent and provide a ruble-dollar exchange rate hedge. The bonds also carry an attached put option giving investors the right to sell off the bonds after two, three or four years, TNK said in a statement.

International Moscow Bank served as technical facilitator for the bond sale.

TNK, which plans to use the funds raised to upgrade its production and retail infrastructure, is hoping to sell off the remainder of the issue at the second tranche in mid-September, Surkov said.

Some 30 percent of the first tranche was snapped up by nonresident holders of restructured treasury bills, or GKOs, while the rest of the tranche went to domestic customers, Surkov said.

TNK, Gazprom and LUKoil have all launched bonds aimed at attracting the interest of the holders of restructured GKOs, who have been left holding millions of rubles with few options of how to invest them. Fearing a capital flight that would damage the ruble, the Central Bank has ring-fenced the cash paid out to nonresident holders of GKOs. The cash could only be repatriated through four cash auctions selling a total of $200 million, way below demand, or the purchase of approved instruments, such as the corporate bonds.

Of the three bonds issued so far, TNK's appears to have been the most successful, analysts said.

"TNK bonds were more welcomed by investors, as they have better terms then the same type [of security] offered by Gazprom and LUKoil," Sergei Babayan, a trader with Troika Dialog brokerage, said Tuesday.

The Tyumen papers are attractive because they have a two-year put option, their interest rates are higher and they are secured with crude export contracts, analysts said.

Another plus has been TNK's generous behavior on the promissory note, or veksel, market this year, Babayan said.

"TNK has also shown its good side on the veksel market. Their [notes] carry 5 percent higher interest rates than the 35 percent currently offered by Gazprom or Sberbank."

Gazprom corporate bonds had their first day of secondary market trading Monday on the Moscow Interbank Currency Exchange, or MICEX. The securities got off to a slow start, with 17 deals registered for a total volume of about 2.5 million rubles ($100,000) at an average price of 83.03 rubles ($3.29), MICEX said in a statement.

The gas giant's four-year bond's issue report was registered by the Federal Securities Commission in late July following their placement early last month. Gazprom sold 1 million dollar-hedged bonds with a 17 percent discount to their nominal price of 1,000 rubles. The semiannual coupon was hiked to 11.3 percent interest from the 5 percent originally proposed by Gazprom, Gazprom vice president Sergei Dubinin said earlier this year.

However, the Gazprom bond placement was not very successful as about 45 percent of the volume was bought by the issue's underwriters - National Reserve Bank, Gorizont investment company and the Federal Stock Corp., a report released by United Financial Group brokerage said. Gazprom did not provide any information on how many bonds were bought by the underwriters in its final report to the Federal Securities Commission.

LUKoil bonds have been the least successful. The company has been looking to place some 3 million dollar-hedged bonds with a semiannual 6 percent coupon for some 3 billion rubles.

Facing lack of interest in the four-year bonds offered at face value, LUKoil has had to extend the placement period to Aug. 18. The issue was originally meant to close in mid-June.

"We have had some bids and hope to place the entire issue," Dmitry Mantsov, a spokesman for issue underwriter LUKoil-Reserve-Invest, said Tuesday.