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Mar 03, 2017

Russian Railways successfully completes US Dollar and Rouble Eurobonds offerings

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In late February, Russian Railways successfully completed two offerings of USD and RUB Eurobonds as part of its 2017 debt strategy. The deal was preceded by a two-day roadshow in London, during which the Company management met with representatives of over 20 major international investment funds and asset managers. The RegS bonds were offered outside the Russian Federation through RZD Capital P.L.C. (Ireland), a special-purpose vehicle that acted as the issuer and subsequently transferred the offering proceeds to Russian Railways in the form of loans.

* * *

The order book for the USD-denominated 7-year Eurobond worth USD 500 million was closed on 22 February 2017. Within several hours, the order book size exceeded USD 1.5 bn and was thus three times oversubscribed. The robust investor demand allowed Russian Railways to reduce substantially the new issue yield from the initial price guidance of 4.625%, which was set in line with the Company's current market rate for USD borrowings of a similar maturity. The final coupon rate was fixed at 4.375%, 0.25 p.p. below the initial price guidance and, consequently, the current market rate. This represents the most successful result achieved by Russian issuers during recent placements on international debt capital markets. Additionally, this marks the lowest coupon rate among Russian Eurobond offerings of a similar maturity since 2013.

The final geographic split of securities’ allocations has been balanced traditionally between international and Russian investors, with the UK and Europe accounting for 41%, Russia 31%, Asia and the Middle East 13%, and the rest of the world 15%.

The new issue transaction was arranged by J.P. Morgan and VTB Capital.

The proceeds will be used to partially refinance the Company's debut Eurobond issued in 2010 and maturing in late March 2017. Part of the debut Eurobond was already repaid in October 2016.

* * *

The order book for the RUB-denominated 7-year Eurobond worth RUB 15 billion was closed on 27 February 2017, with the total order book size exceeding RUB 35 billion. While the initial price guidance was announced at about 9.2%, the same as the coupon of the RUB denominated 7-year Eurobond issued by the Company in October 2016, the transaction was priced with a final coupon of 8.99%, below the psychological threshold of 9.0%.

The geographic split of securities’ allocations is significantly different to that of all previous Russian Railways’ RUB-denominated Eurobond issues. In the final split, international investment funds accounted for nearly 70%, with 33% of the book allocated to investors from Asia. This marks the largest-ever participation of Asian investors in Russian Railways’ Eurobond issues (across the currencies). One of the largest orders was received from a foreign sovereign wealth fund, which is unprecedented with regard to RUB-denominated transactions.

A careful study of investor feedback to develop the placement strategy followed by a targeted marketing campaign during the roadshow were the key to the transaction's success.

Russian Railways sees strong appetite from international investors for its RUB-denominated offerings, which indicates a gradual build-up of an international investor base for rouble transactions.

The cost of the Company’s rouble borrowings abroad is in line with that of its local debt, which allows Russian Railways to continue diversifying its sources of financing.

The new issue transaction was arranged by Gazprombank, J.P. Morgan and VTB Capital.

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