Gazprom Selling 15-Year Bond as Investors Seek New Issues

   By Art Patnaude 
 

Russian oil and gas giant OAO Gazprom (GAZP.RS) Wednesday was selling a longer-dated bond as part of its two-tranche deal, taking advantage of demand among investors for new corporate bonds from the country.

The state-controlled issuer was preparing to sell both 15-year and seven-year bonds denominated in dollars.

There are few companies in developing countries that can afford to sell bonds with maturities beyond 10 years, with the risk of not being paid back perceived to be too high. But ties between the Russian government and Gazprom provide an added confidence needed to issue longer-dated bonds.

"Gazprom is a well-known quasi-sovereign company with a still-strong credit profile, meaning it can print longer paper," said Alexander Sklemin, credit analyst at Raiffeisen Bank in Vienna. "I believe one of key reasons for this deal are refinancing needs, so the longer the maturity profile, the better," he added.

Gazprom in the past sold two 30-year bonds, which mature in 2034 and 2037, according to Tradeweb data. After those, the next longest bond comes due in 2022. Credit analysts said that the 15-year bond--maturing in 2028--fills that gap.

The new 15-year bond was set to price with a yield in the area of 5%, while the price of the 7-year bond was guided toward the area of 3.85%, a banker working on the deal said.

Companies from weaker euro-zone economies started selling longer-dated bonds this month after years of being locked out of public markets. Last week, Italian utility Hera SpA sold a 15-year bond, the longest-dated corporate bond sold from that country in more than two years.

Growing confidence that the worst of the financial crisis is passed, and investors hunting for returns amid low-interest rates, supported such sales.

However, market participants said this trend isn't applicable to Gazprom.

The corporate credit market for Russia and former Soviet Republics "doesn't have a big history of longer-dated bonds sold publicly," Mr. Sklemin said. "I wouldn't say the market is really keen on buying longer maturities from Russia in general. Under the current market conditions, investors seem to be eager to buy any reasonable new offering, so Gazprom can allow itself to go further out on the curve."

A banker working on the deal said other companies can sell longer-dated bonds in their local currencies, but not dollar deals marketed to international investors.

BNP Paribas, Gazprombank, and JP Morgan were the banks running the deal, which is expected to price later Wednesday.

The issuer is rated investment grade, with a Baa1 rating from Moody's Investors Service, and BBB ratings from both Standard and Poor's and Fitch Ratings.

(Sarka Halas contributed to this report.)

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