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. Last Updated: 07/27/2016

Oil Firms Poised for Eurobond Offers


Oil majors will likely lead more Russian borrowers into the eurobond market after Gazprom raised $2.4 billion in a heavily oversubscribed two-part offering, analysts and traders said.

LUKoil and TNK-BP, half owned by oil major BP, were seen best placed to follow Gazprom which priced a $1.25 billion bond and an 825 million euro ($1.17 billion) deal on Wednesday.

Russian companies may take the chance as credit risk appetite for emerging markets has been rising and emerging assets firmed earlier this week to their strongest levels in 10 months.

“The order book for Gazprom’s euro-denominated tranche exceeded 9 billion euros. That means global demand is just enormous. Should LUKoil or TNK-BP offer a fresh bond, investors would be more than happy to buy it,” said Nikolai Podguzov, an analyst at Renaissance Capital.

LUKoil, which has plans to raise about $1 billion, and TNK-BP have recently run non-deal road shows for investors.

“Investment-grade borrowers could easily find strong demand for their bonds. It is true both for LUKoil and TNK-BP. Sberbank would sell like hot cakes. Even VimpelCom or MTS could place eurobonds without straining themselves,” Alexander Nikolayev, head of operations on global markets at Bank of Moscow said.

Gazprom is rated BBB with a negative outlook by S&P, which rates LUKoil at BBB-, while TNK is BB+.

Troika Dialog analyst Alexander Kudrin said the market was open for quasi-sovereign names including pipeline monopoly Transneft, and state-controlled banks VTB and Rosselkhozbank.

But listed companies should also be able to raise the funds through fixed-income instruments, he said. “TNK-BP and LUKoil are most likely to tap the market after Gazprom’s deal.”

Investor appetite for emerging market risk brought a hefty cut in pricing for Gazprom but other borrowers should not expect the same treatment, analysts said.

A month ago Russia’s second biggest lender, VTB, had to put a new eurobond issue on hold. Investors showed little enthusiasm for the proposed 9 percent coupon, equal to that on a Rosselkhozbank bond priced weeks earlier.