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. Last Updated: 07/27/2016

Sibneft Bond Float Aims At Foreign GKO Holders

As another Russian oil major's bond issue draws to a close, Sibneft's board of directors approved a decision to float 2 billion rubles ($77.8 million) worth of corporate bonds aimed at nonresident holders of restructured Russian treasury bills, or GKOs.

After completing the second tranche of its bond, Tyumen Oil Co., or TNK, has now placed roughly 94 percent of its 2.5 billion ruble float.

Sibneft plans to apply to the Federal Securities Commission to register its prospectus for an emission of 2 million bonds at a nominal price of 1,000 rubles ($38.90) each, company officials said Friday. The three-year papers will be placed at a discount rate yet to be determined. They will not carry any payable coupons.

The oil company plans to use the funds to explore its Romanovskoye and Sugmutskoye oil fields in Western Siberia. Some proceeds will also go to the Sibneft-affiliated Omsk refinery for an upgrade that will install equipment needed to allow the facility to produce 98 octane gasoline.

The Sibneft and TNK bonds - just like similar instruments issued by LUKoil and Gazprom - are primarily for nonresidents stuck with cash from the state's GKO restructuring.

That cash is kept in special accounts and hedged around with restrictions to stop its repatriation, which Russia fears would damage the ruble's standing against the dollar.

Foreign investors were stuck with some $40 billion worth of GKOs on Aug. 17 last year when the Russian government simultaneously devalued the ruble and defaulted on its ruble-denominated short-term securities, freezing the GKO market.

The second tranche of TNK's bond issue was launched Thursday, and 85.5 percent of the bonds on offer were placed that day.

The bonds, with a nominal price of 1,000 rubles, were offered at an 8.8 percent discount with an annual interest rate of 12.5 percent over the first two years, TNK vice president Oleg Surkov said.

The company was able to place about 46 percent of the total bond issue during the first tranche offering, which took place last month. The second offer will be open until Sept. 22, and TNK is hoping the entire bond issue will have sold out before that closing date.

The TNK bond prospectus scheduled an emission of 2.5 million five-year bonds at the 1,000 ruble nominal price, carrying a semiannual 7 percent coupon hedged against exchange rate fluctuations.

The bonds also assume an attached put option exercisable after two, three or four years of holding them, the company said.

Meanwhile, the FSC registered on Wednesday the results of a 3 billion ruble LUKoil bond placement, which carries a 6 percent semiannual coupon. That issue was bought by 17 banks, with CS First Boston acting as facilitator, analysts said.

Gazprom's bonds are already traded on the Moscow Interbank Currency Exchange.

Tatneft has also talked about a bonds issue, but analysts have been skeptical about the prospects for such a bond, due to Tatneft's roughly $900 million mountain of outstanding debts.