Half-priced debt deal announced
Hear Ya, Bud! Gazprom's Record Discount Bond Game 💸
Gazprom's Discount Bond Hassle Closes with a Bang!
Look who just nailed a cool 60 billion rubles in record discount bond issuance! That's right, Gazprom (MOEX: GAZP) shook up the Russian market like never before. They aimed to raise a whopping 120 billion rubles, but only had the need for 60 after investors went wild over it. Discount bonds are practically nonexistent on the Russian turf, but word on the street is, more of these bad boys might pop up if the key rate gets cut.
On 28th April, Gazprom Neft sealed the deal on two bond issues – discount and floating rate (floater). The five-year discount bond issue got the most love from investors. Demand was way off the charts – more than triple the offer, so you can bet your boots the issuer placed the full 120 billion rubles and walked away with 60. With such overwhelming demand, the final coupon dropped from the initial target of 2.5% to a tight 2%.
Discount bonds are hardly common on the Russian debt market. Out of approximately 500 classic bond issuances in the first four months of the year, only two Sberbank deals worth 40 billion rubles (with a raised amount of 19.4 billion rubles) were discount bonds.
The massive placement was all thanks to Gazprom Neft's clever plan – offering a small coupon that boosts investment yields while other issuers went coupon-free.
According to PS Bank's managing director for banking and financial market analysis, Dmitry Gritskevich, those fancy Gazprom Neft bonds with a coupon target of 2% and a placement price of 50% offer a yield of a whopping 18.46% per annum!
Who's Gonna Share the Prosperity with Shareholders This Year?
Discount bonds could be the new black for long-term investors. They help minimize tax expenses with a tax break if securities are held for over three years, or income tax is delayed until redemption for legal entities. High rollers aren't the only ones getting in on the action. Mutual investment fund and pension fund managers are also eyeing these babies as a good ol' investment strategy, especially with expectations of a key rate cut by the Bank of Russia.
60 Billion Rubles
– The Moolah Gazprom Neft landed from their Discount Bond placement
Investors were also feeling flippin' hot for two-year floaters, which fetched 42.5 billion rubles (85% of the total amount). The coupon was set at the key rate + 200 bps (initially aimed for 225 bps). Floaters are traditionally suitable for banks due to their dependence on the Bank of Russia's key rate.
The simultaneous placement of bonds with fixed and floating coupons is becoming the new trend.
Dmitry Gritskevich commented on the April pairings of PKB, "New Technologies", and "MegaFon" bonds, saying this practice "allows maximizing demand and the volume of the issue by covering the maximum number of investors."
Expect more companies to jump on the discount bond bandwagon in anticipation of a softer monetary policy from the Bank of Russia. Large banks and real sector companies might take the plunge, but we're not expecting a flood of issuers just yet. That's because discount securities aren't top priority for banks, currently holding 60% of the market.
Vitaly Gaidayev
- Gazprom's successful discount bond placement secured 60 billion rubles, making history in the Russian market.
- In the record issuance, Gazprom Neft's five-year discount bond attracted triple the initial offer, with a final coupon of 2%.
- Discount bonds, such as Gazprom's, can offer high yields, as estimated by PS Bank's Dmitry Gritskevich, with a yield of 18.46% per annum for bonds with a coupon of 2% and a placement price of 50%.
- The trend of simultaneous placement of bonds with fixed and floating coupons may become more common, potentially leading to an increase in the number of companies issuing discount bonds, especially with anticipation of a softer monetary policy from the Bank of Russia.
