KazMunaiGas sets off blue-chip cheer amid funding divide
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Emerging Markets

KazMunaiGas sets off blue-chip cheer amid funding divide

KazMunaiGas (KMG), the Kazakh state-owned energy company, is set to join blue-chip borrowers from Russia and the CIS tapping the international bond markets. But the move will provide little solace to the region’s lower rated corporates – including Azerbaijan’s Technikabank – in their struggle to raise funds.

The Kazakh energy firm has mandated investment banks ABN Amro, Citigroup and Credit Suisse as bookrunners on a jumbo Eurobond issue.

Russia’s blue-chip corporates have met with a rapturous response from investors, with benchmark dollar deals from steel company Evraz, gas giant Gazprom and telecoms firm Vimpelcom, all comfortably oversubscribed.

But the dealflow among top rated firms contrasts sharply with the picture for the region’s lower-tiered companies. Azerbaijan’s Technikabank, which completed roadshows for its debut Reg S/144A Eurobond earlier this month, has been forced to effectively abandon the deal for the immediate future, amid howls of condemnation from market participants, who variously described it as “suicidal” and “ludicrous.”

The deal’s very public stalling highlights the continuing bifurcation in the emerging market bond arena, where large, well rated corporates are able to achieve large deals, while lower rated financial institutions remain firmly locked out.

The B2/B- rated Technikabank, which has around $400 million of assets, was planning a deal of up to $200 million through bookrunners Morgan Stanley. It was to be the first public dollar issue from an Azerbaijani borrower.

But the deal met with roadblocks from the outset when an Moody’s lowered the bank’s rating from stable to negative.

“The market is still cautious,” said Mike Elliff, managing director and head of CEEMEA loan and bond origination, at ABN Amro in London. “But there remains a wall of money out there for the right deal at the right price.”

News of the KMG deal comes as Russian Agricultural Bank (RAB) prepares to become the first Russian bank this year to price a benchmark bond. Bankers on the deal – lead by ABN Amro, Citi and Goldman Sachs – are optimistic about its success: a three-team roadshow will meet the “who’s who” of emerging market bond investors.

RAB will be the first Russian bank to issue a public Eurobond issue in 2008, while KMG will follow Halyk Bank as only the second Kazakh issuer to complete a public deal this year.

There is still scope for a more significant reopening of the market, should the RAB deal prove a blowout. “Provided we don’t have any serious market indigestion, we may see high qaulity private banks access the market in the coming months,” said Elliff.

Meanwhile, Emerging Markets can reveal that a refinance KMG’s acquisitions of the Kashagan project and Rompetrol, will be up to $3billion and, observers predict, could appear as early as the end of May. Bankers on the deal declined to comment.

On Thursday, further evidence emerged that the new issue market is open for top corporate borrowers, when Evraz priced a $400 million tap of the $1.6 billion dual tranche deal it launched last month. After just half an hour of bookbuilding, the deal had attracted $1.6 billion of orders.

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