Background:
With the collapse and subsequent nationalisation of Otkritie and B&N Bank, and continued concerns about Russia’s other private banks, even Russia’s second biggest private bank – 7th in terms of overall assets – couldn’t be entirely comfortable in that market environment, exacerbated further by the uncertainty surrounding the alleged US Treasury plans to tighten sanctions on Russia (and possibly include Russian debt).
It is therefore all the more impressive how Credit Bank of Moscow was able find a window of opportunity to place a benchmark-sized bond that priced well inside its existing senior 5-year notes and carried the tightest ever new issue coupon for a USD issue with this tenor.
Transaction Breakdown
The bank, whose strategy focus is based on a unique bed corporates usiness model, including a strong corporate platform with a focus on large and medium sizas well as a high-end customer base in the retail banking sector, in January announced its intent to place the first 144A/RegS deal by a Russian FI in 2018.
After a very well-attended investor roadshow held in the first week of February in London, Zurich, New York & Boston and in response to their feedback, a 5-year tenor was confirmed. Following several days of softer market backdrop, offset by overwhelming interest of investors illustrating ample liquidity of EM accounts and their demand for CBM’s credit, a go / no-go call was held at 9am UK time on 7 February.
CBM subsequently decided to open books with IPTs of high 5%s for a USD benchmark-size transaction due 2023. As books grew to over USD1.3bn, price guidance of 5.625%-5.75% was released to the market shortly after US markets opened. With the book holding well and benefitting from additional US demand, final pricing range of 5.55-5.625% was released, with the size set at USD500mn.
The deal was subsequently launched and priced later the same evening at 5.55%, coming over 40bp inside the wide end of IPTs. Despite challenging market environment during execution, and weakening perception of Russian FI credits on the back of negative headlines in 2017, this outcome illustrated there is still ample investor demand for Russian financials in general, as well as investors’ continued confidence in CBM’s credit.
The transaction followed a common LPN structure as in line with the company’s previous USD bond placements, while the 5-year tenor reflected the bank’s preferences in terms of maturity against target pricing. Pricing well inside the previous senior 5-year notes by CBM (previous ones were at 5.875% in 2016 and at 7.70% in 2013), it was the CBM’s tightest-priced Eurobond and had the tightest ever new issue coupon for USD 5-year notes by Russian FIs.
The 144A/RegS format enabled over 85% of international distribution, with 30% allocated to US accounts, 32% to UK accounts, 23% in continental Europe, 1% to Asia and the remaining 14% in Russia. By type, 85% of the placement was distributed to institutional investors, with the other 15% going to banks and private banks. The final orderbook comprised over 100 accounts.
The proceeds of the deal are to be used primarily to refinance the USD500mn 7.700% Senior Unsecured Loan Participation Notes that matured earlier in February 2018.
