Rating: Baa2/BBB-/BBB
Amount: $500m Reg S/144A
Maturity: 13 June 2024
Issue/fixed reoffer price: 100
Coupon: 4.375%
Spread at reoffer: mid-swaps plus 249bp; May 2024 US Treasury plus 250bp
Launched: Wednesday, June 5
Payment date: June 13
Joint books: Citi, JP Morgan, Société Générale
Bookrunners’ comment:
Initial price thoughts were at 4.75% area for a $500m Reg S/144A five year no-grow.
When the book reached $1.4bn, guidance was updated to 4.625%.
The book grew to $1.8bn, allowing the leads to revise guidance further to 4.5% area. The book peaked at $2.2bn. Around $200m of orders fell away at the final spread of 4.375%.
We priced with no, or possibly even a negative, new issue premium.
We wanted to get as close as possible to fair value. We had various options in terms of how to derive it, but NLMK was the target. The strategy we selected was to start at 4.75% and aim to go through 4.5%. The overall timing worked out very well. The Fed announcement helped sentiment. As MMK is a domestic player it helps as a rate cut plays in their favour and they’re not exposed to import taxes.
With US rates likely to go down, investors are keen to buy bonds that offer a higher high spread to US Treasuries in order to preserve overall yields. People want to grab something high quality at relatively high spread to Treasuries. So it was just the right momentum.
Most of the questions were about the business model, not sanctions, and them coming back to market as they hadn’t been for a long time. From the issuer’s point of view, they felt it was important for the company to put their dot on the map and establish a presence with international investors and improve its capital structure. It had negative net leverage, which is now positive and that maximises the value of company.
The company wanted to keep the Russian portion of distribution to a minimum. They wanted a focus not just on pricing, but also on getting a diverse investor base. Going forward, they’ll be more relaxed on allocations.
The bonds were trading around 100.1-100.3 on Thursday. It’s unlikely that MMK will return to the bond markets again this year.
Geographical distribution
US 31%
UK 17%
Russia 15%
Switzerland 15%
Other Europe 14%
Asia 8%
Investor distribution
Asset managers 58%
Banks/private banks 30%
Insurance 7%
Hedge funds 5%
Market appraisal:
“…it shows appetite for Russian corporate risk is very high. Curves are still tight and we’re concerned about that, but it was strongly oversubscribed and seems to have gone really well.”
