Russian Railways could place Eurobonds by end-2012.

By bne IntelliNews September 24, 2012
Russian Railways (RZD) does not exclude placing Eurobonds by the end of 2012, senior VP of the company Vadim Mikhailov told the press. It is not yet clear whether the placement is better done in 2012 or in 2013, Mikhailov commented, without specifying the possible amount of the issue. RZD in the coming 3-5 years plans to borrow RUB 60bn-RUB 80bn (USD 1.8bn - USD 2.4bn), PRIME reported in the end of August citing a corporate finance rep of the company. This would include tapping the Eurobond market at least once a year, with the rest to be borrowed in RUB. To remind, RZD placed USD 1bn worth of 10-year Eurobonds yielding 5.7% annually in the end of March 2012. Demand for the securities exceeded the amount proposed threefold. It is also noted that prior to the placement yield guidance was lowered from 5.875% to 5.75%, making it the lowest yield on 10-year Eurobonds from CIS issuers then. RZD also placed RUB 25bn worth of 7-year RUB-denominated Eurobonds at 8.3%, demand almost twofold exceeding the amount proposed. This year the company was going to borrow about RUB 100bn, out of which 70% will account for RUB and 30% for foreign currencies. In May six issues of 10 to 20 years domestic bonds worth RUB 90bn were registered. In August Fitch Ratings believed that 7% cargo rail transportation tariff indexation proposed by the government as of January 1 2013 will not be sufficient to finance the investment program of Russian Railways (RZD, BBB/Stable) in the absence of other financing sources or other support from the state as the only shareholder of the company. RZD itself proposed a 11% indexation. Fitch still expects subsidies and capital deposits from the state do support the operational activities and capital expenditures of RZD. At the same time the government reviews additional way of support, such as state guarantees and investing reserves into long-term infrastructure projects. At the same time agency notes that partial privatization of the company (25% plus one share) planned for 2012-2013 is unlikely to affect the ratings of RZD.

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