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. Last Updated: 07/27/2016

Demand Hits $6Bln for Gazprom Bond

LONDON --Gazprom raised $1.75 billion on Friday in what is thought to be the largest corporate bond in emerging market history.

Investors, the Financial Times reported, watched in astonishment as the gas giant's 10-year international bond sale was oversubscribed by an estimated six times and increased in size by 75 percent ahead of Friday's issue in response to bumper demand from buyers on both sides of the Atlantic.

"The deal seems to have been massively oversubscribed," said Jean-Dominic Butikofer of Julius Baer Asset Management in Switzerland. "We could see the bond flying a few points if people are running after the deal."

The deal pays a coupon of 9.625 percent and was priced at par. It was lead-managed by Morgan Stanley and Dresdner Kleinwort Wasserstein.

The bond had been quoted up to 2.5 points above its reoffer price in the gray market, before being freed to trade, he said.

Earlier on Friday, ahead of the formal issue of the bond, fund managers were reporting demand of $6.5 billion.

Gazprom, the world's largest natural gas producer, confirmed plans in January to sell the Eurobond, which is also eligible for private placement into the U.S. under rule 144A.

The deal is one of the largest ever sold by a sub-investment grade company. Gazprom is rated B+ by Standard & Poor's, well below investment grade, limiting the potential audience for its debt.

The size of the new bond crept up in stages, with three different sizes mentioned on Thursday, and a size of $1.75 billion announced at the beginning of Friday's session.

Gazprom plans overall borrowings of $4 billion this year, $1 billion of which will be collateralized by export revenues and thus not be sourced from international bond markets.

"Gazprom wants to borrow $3 billion this year. So they may take advantage of that demand, and reopen this bond after a few days or a few weeks," said Julius Baer's Butikofer.

He warned that a significant further increase to the deal's size could cap any price gains, however.

Gazprom has about $6 billion of debt to repay in 2003, and has said it will use some of the proceeds from Friday's bond to reduce short-term debt.

Russian companies borrowed $5.1 billion between January and September 2002, according the Central Bank, with Eurobond issues by Gazprom and other oil- and gas-producing firms accounting for one-third of that total.

Friday's deal reached a wider investor base than is typical for a new emerging market bond.

"We're not big users of emerging markets debt, but this particular deal looks attractive to us," said Ronald Bringewatt, portfolio manager for TimesSquare Capital Management Inc. in New York.

Russian corporate bonds are in demand because the state is not borrowing, while high prices for Russia's key oil and gas exports have boosted Central Bank coffers, raising the value of Russian debt as a whole.

Last week Russian Central Bank reported record reserves of $51.4 billion, up $1.2 billion, their seventh-consecutive week of gains.

(Reuters, MT)