Page 11 - FSUOGM Week 15

FSUOGM INVESTMENT FSUOGM
Gazprom places €1bn in eurobonds
RUSSIA
The offering is the first by a Russian company since the oil price rout began.
RUSSIA’S Gazprom launched a €1bn ($1.1bn), five-year eurobond on April 8 – its first euro-de- nominated issue in two years, one of its bookrun- ners Gazprombank said on April 8.
The sale was also the first eurobond issue to be held by a Russian company since the oil price collapse in early March. The other bookrunners were JP Morgan and UniCredit.
Gazprom was able to narrow the yield guid- ance twice during bidding thanks to strong interest, Gazprombank said. The initial guid- ance was set at 3.375% but was lowered to 3.125% after demand exceeded €2.3bn, and then again to 2.95% when demand reached €3bn.
A third of investors to buy the bonds were from Russia, while around a quarter hailed from Germany. UK investors amounted to 10-15%, French 10-11% and Swiss 6-7%. A few investors also stepped forward from Asia and US offshore accounts.
Gazprom is likely to use proceeds from the sale to reservice its debt. The company is
contending with weaker export revenues this year as a result of coronavirus (COVID-19) lock- downs, which have sapped demand and driven down prices.
Gazprom shipments to non-CIS countries, namely Europe, slumped 30% year on year in January-February, reaching just 24.9bn cubic metres, federal customs data shows. Despite its challenges, the company is yet to announce a reduction in capital spending.
Gazprom last tapped the market for euro-de- nominated bonds in 2018, selling eight-year notes at a 2.5% yield and six-year notes at a 2.95% yield. It currently has six outstanding bond issues it needs to buy back worth €4.75bn.
Gazprombank’s first vice president, Denis Shulakov, hailed the latest issue as a success, despite current market conditions and difficul- ties arranging the sale because of COVID-19 restrictions.
“The placement was carried out without meetings with investors,” he said, attributing its success to investors’ trust in Gazprom. ™
Russian oil and gas names hurt by renewed OPEC+ deal: BCS
RUSSIA
Investors are disappointed with the extent of the cuts.
BCS Global Markets on April 14 downgraded several oil and gas names and cut the 12-month target prices on their shares by 5% to reflect the OPEC-related cut for Russian oil producers and fallout from coronavirus (COVID-19).
As reported by bne IntelliNews, last week OPEC and its allies finalised an historic deal to take 9.7mn barrels per day (bpd) of oil supply off the market – just under 10% of global pro- duction – to help the industry through its worst crisis in a century, but the market remained scep- tical about the effects of the deal.
“Although G20 and some African countries promised to cut 5-7mn bpd production, the combined effort is still not enough to offset exist- ing oversupply, which in April may total 30mn bpd, and its further momentum is still unclear,” BCS Global Markets commented.
The analysts see the key positive of the deal as that it delays the time when global oil storage facilities will finally run out of spare capacity and limits additional downside in oil prices. But even despite OPEC+ quotas committed until March 2022, it should take about 1.5-2 years just to absorb existing inventories to a normal level, BCS GM estimates.
BCS GM retains an oil price forecast of $38 per barrel in 2020, $55 in 2021 and $65 in 2022,
but sees Russian oil producers being hit by both supply and demand pressure, as fallout from coronavirus leads to about 25-30mn bpd oil oversupply on reduced demand.
Russia’s oil output is anticipated to be down 10% on average in 2020-2021 compared to 2019, with the cut in target prices for Russian oil names reflecting lower sales volumes. BCS GM has downgraded Lukoil, Tatneft and Novatek to Hold, while downgrading preferred and ordi- nary shares of SurgutNefteGas to Sell. Buy calls are affirmed on state majors Gazprom, Rosneft and Gazprom Neft.
“After the recent rally of 30-40%, we see lim- ited upside for most names in the sector, espe- cially amid spot Urals price below RUB2,000 per bbl (two-fold decline y/y),” BCS GM commented.
The base case for 2020 estimated oil and gas industry enterprise value / free cash flow (based on $55 per barrel Urals price assump- tion) is at 8.7x, while the average 2021 price / earnings is at 7x (upper bound of historical range). In this environment, BCS GM ana- lysts favour Gazprom, Rosneft and Gazprom Neft, which are “still attractive on valuations and offer high single-digit 12-month dividend yield”. ™
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