With assets of some $10.5bn at last year-end, Gazprombank is the third-largest bank in Russia. It is owned by monopoly gas producer Gazprom, Russia’s largest company and itself owned by the state. Yet, as its advisers have been at pains to point out to investors, it is no pocket bank – though that’s exactly what it was when first established in 1990.
More recently, however, the bank has purposefully diversified into a more universal institution, with 35,000 corporate clients and one million retail customers. One measure of its changing status is the fact that outstanding loans to Gazprom Group have fallen rapidly from 70% of the total in 2002 to 35% last year. That is not because it is lending less to the gas producer, but because it is expanding the rest of its loan book – assets grew by some 60% in 2004. The investment grade rating of its international paper allows cheaper funding, giving it a valuable competitive advantage over its smaller rivals, of which there are many.
State of grace
Being state-owned is also an advantage in today’s Russia, particularly in the wake of last year’s banking mini-crisis, when there were runs on a number of independent banks. State-owned institutions, now seen as safer places to park one’s money, enjoyed a significant rise in deposits. And while state ownership is not always a badge of efficiency, Gazprombank and its larger state-owned rivals, Sberbank and Vneshtorgbank, tend to lead rather than lag their market in terms of competitiveness and use of technology.
Asset growth, of course, requires funding – hence Gazprombank’s recent sortie into the capital markets, with the help of bookrunners Dresdner Kleinwort Wasserstein and Citigroup. “We have a detailed, well-focused borrowing strategy,” says deputy chairman Alexey Obozintsev, adding that the board is to approve the funding programme for 2006 and 2007 later this year. “Each year we will use a mix of eurobond issues, rouble-denominated issues and syndicated loans.”
Which is exactly what it is doing in 2005. In April, the bank raised $650m in a three-year syndicated loan involving 41 banks. “We raise funds mainly in dollars,” Mr Obozintsev explains. “The share of Russia’s trade denominated in euros is relatively small, and not many customers come to borrow in euros.”
Later this year, the bank will launch a five-year, R5bn ($175m) issue. But the centrepiece of this year’s programme was September’s dollar-denominated deal, which raised $1bn.
“Market conditions were very fair for Russia in general and top-tier Russian banks in particular,” Mr Obozintsev recalls. Gazprombank and its advisers took to the road saying only that it would be a dollar issue of benchmark size – say, $500m to $750m – in seven to 10-year paper.
The bank’s last international bond issue was in 2003, when it raised $1.05bn in a five-year transaction. But this time, once they had swung through Hong Kong, Singapore, and five European centres, it was clear that the core European market favoured a 10-year issue and that Asian investors, though preferring a seven-year term, would settle for that too.
For price guidance, the team looked at Gazprom’s curve in both dollars and euros, as well as those of Vneshtorgbank and Sberbank. They eventually went out into the marketplace suggesting mid swaps plus 200 basis points (bp) area – “attractive but not cheap”, as one banker put it.
Huge take up
Although Asia took a little time to warm up, the eventual response was overwhelming. When the book had built to over $5bn, price guidance was refined to 190-195bp. The issue finally closed at 190bp, yielding 6.5%. Having started in the 6.625% area, Gazprombank had every reason to be delighted with the results.
Orders worth more than $6.5bn had been received from an astonishing 384 accounts, enabling the size to be increased to $1bn. And unsatisfied demand meant a strong showing in the secondary market – the bonds ended their first trading day at 100.75-100.85.
The bulk of the proceeds will be used to continue growing the loan book, though the bank has used a small portion to repay a €150m three-year bond issued in 2002. It yielded 9.75%, which speaks volumes about how perceptions have since changed.
“Gazprom is a frequent and high-quality borrower, and can get better terms than we can,” Mr Obozintsev points out. “But we are very proud to have borrowed at only a limited premium to our parent.”
