Russian Railways (RZD) to sell EUR 3.3bn infrastructure bonds in Q2/13.

By bne IntelliNews February 8, 2013
Russian Railways plans to sell a first tranche of special inflation-indexed infrastructure bonds worth some RUB 100bn (EUR 3.3bn) in the second quarter of 2013, the deputy head of the companys corporate finance department, Pavel Ilichev, said. We are expecting that in the first quarter all the preparation work will be completed and in the second quarter we will issue the first tranche, Ilichev told IntelliNews on the sidelines of Euromoney's Central and Eastern Europe Forum held last month in Vienna. The company has decided to issue around RUB 100bn worth of infrastructure bonds in each of 2013, 2014 and 2015 with maturities ranging from 15 up to 30 years and an interest rate indexed to inflation plus 100 bps. Ilichev told the Forum that the infrastructure bonds are designed to also support the domestic state pension fund system, which is not managing its assets, worth some RUB 2tn, efficiently enough and has invested them mainly in federal bonds with lower than inflation interest rate. RZD has therefore proposed to issue the so called infrastructure bonds with the longest possible maturity of up to 30 years and with direct link to the inflation to collect money for investing in building new infrastructure. RZD has been one of the major debt issuers on the domestic debt market and started its expansion on the international market in 2010 in search of longer matures and lower cost of financing. Its first Eurobond worth USD 1.5bn with seven-year maturity and a 5.7% coupon was more than nine times oversubscribed, Ilichev said. The company then issued a 20-year Eurobond in British pounds worth GBP 650mn with a 7.49% coupon in 2011. Last year, it placed two debt issues a 10-year Eurobonds in USD worth USD 1.4bn with a 5.7% coupon and a seven-year rubble-denominated Eurobond worth RUB 37.5bn and an 8.3% coupon. Izvestiya reported this week citing a source close to RZD that the company counts on state development bank VneshEkonmBank (VEB) to fully buy out the infrastructure bonds using the pension funds VEB manages. The bank is going to decide on infrastructure projects to be financed by pension funds already this spring. At the same time VEB was requested by the banks that participate in RUB 200bn mortgage securitization program to prolong it for another year to 2014, gazeta.ru reports. In 2012 net inflow of pension funds to VEB stood at RUB 180bn and the projected inflow in short-term is uncertain due to still unresolved parameters of the Pension Fund Reform. Should the inflow of pension funds decline VEB might have to choose between infrastructure projects and the mortgage support program.

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