ALMATY. July 3 (Interfax) - Kazakh national railway operator Kazakhstan Temir Zholy (KTZ) placed $800 million in 30-year senior Eurobonds on July 2, the company told Interfax.
Yield to maturity is 6.95% pa. The bonds were placed at the lower end of the price range.
The bonds were placed under Reg S/144a.
KTZ started a Eurobond road show on June 25 for investors from Kazakhstan, the United States and Europe. The company said $3.9 million in KTZ bonds were sold in Kazakhstan.
The issuer is Kazakhstan Temir Zholy Finance B.V.
Barclays and HSBC are the road show's lead managers in Europe and the United States, while Kazkommertsbank Securities will be organizing a road show for investors in Kazakhstan.
Moody's Investors Service has assigned a provisional rating of "Baa3" to the proposed notes, outlook stable.
KTZ has $350 million in ten-year bonds due in 2016, as well as $700 million in ten-year 6.37%-bonds due in 2020 outstanding.
Troika Dialog said the new KTZ bonds were overpriced in comparison to Russian bonds.
The YTM of 6.95% implies a spread over the UST 30 of 420 bps. For comparison, the shorter-dated KTZ 20 issue is quoted with a spread over USTs of around 350 bps, while the 30y Eurobonds of Russian Railways (RZD) (RTS: RZHD), denominated in British pounds, are traded at a spread over government securities of around 440 bps. This is the longest Eurobond ever placed by a Kazakh issuer.
"We think that the bonds are overpriced in comparison to Russian peers, but of course they are suitable for index-oriented buy-to-hold accounts seeking exposure to Kazakh quasi-Sovereign risk," Troika Dialog said.
The experts of Troika Dialog believe that "most of the demand for the issue came from long-term, dedicated US-based institutional investors who "visibly remain quite interested in longer-dated placements from EM Sovereign and quasi-Sovereign issuers."
"The paper was quoted at around 101.5-102% of par at the end of the US trading session," the statement reads.
According to Troika Dialog, Kazakh pension funds were not able to participate in the placement because of the issue structure.
"Unusually for a Kazakh quasi-Sovereign borrower the bond was issued not from the company directly, but from an offshore SPV. This makes them relatively more expensive to service (since the Kazakh-based parent entity has to gross up the local withholding tax on the coupons and pay the tax itself to the government) and not eligible for investment by local pension funds. NC KazMunaiGas, the largest Kazakh Eurobond issuer, substituted the issuer of its EMTN program from the offshore SPV to the parent entity late in 2010, but its bonds, eligible for the largest category of local buy-side investors (pension funds), trade at the same yields as issues of Kazakh Temir Zholy," the statement says.
Troika Dialog reckons that "incumbent demand from cash-rich and underinvested local buy side institutions (pension funds, insurance companies and treasuries of commercial banks) have been an important driver behind the visible spread compression in Kazakh quasi-Sovereign issuers."
Kazakhstan Temir Zholy Finance BV is owned by KTZ and its subsidiary, Kaztemirtrans.
Headquartered in Astana, Kazakhstan, KTZ is the 100% state-controlled vertically integrated rail group operating the national rail network of the Republic of Kazakhstan. The sole shareholder of KTZ is the state represented by JSC National Welfare Fund Samruk-Kazyna.
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