14.11.2007 - MDM Comment: Federal Grid (Baa2/BB+) new issue

We are hearing that Federal Grid (Baa2/BB+, state-controlled transmission monopoly) is currently marketing a new Euroclearable ruble issue at 7.3-7.5%, maturing in 5 years with a 1-year put  (coupons apparently reset after 1 year). At 7.3-7.5% for 1 year the bond is offering some 120-140bp over NDF/Swap curve. The pure local bonds of Federal Grid are trading at similar levels (the Grid's local curve got inverted recently as investors were perhaps selling short end in anticipation of the new bond), but MICEX-traded issues of high grade names are always looking extremely expensive from a spread over swaps perspective since they are eligible for guaranteed repo at the Central Bank. Hence we don't think they are appropriate as a benchmark. The short-dated Euroclearable USD bonds of Russian high grade issuers are currently seen at around 150-175bp  (e.g. VTBs or Gazprombank).  In this regard we don't view the proposed issue as attractive. If coupons were set for the whole 5 years, it would have added some value because of positive convexity.

20.02.2008 15:59