Lukoil cuts through turbulence to issue benchmark ten-year US$1.5bn bond

The challenge

At the time of this transaction the world was in the middle of the COVID-19 global pandemic and West Texas Intermediate (WTI) crude oil prices went into negative territory.

However, PJSC Lukoil was planning a return to the international debt capital markets after an absence of more than three years to raise over US$1bn.

The solution

On 28th April 2020, the company issued a benchmark US$1.5bn ten-year 144a/Reg S Eurobond offering at 3.875% and was the first US dollar corporate bond to be issued out of CEEMEA since March. The transaction settlement date was 6th May 2020, with an expiry date of 6th May 2030. Active joint bookrunners were Citi and Societe Generale and Citi was also the trustee and paying agent in the transaction. Gazprombank was a passive joint bookrunner.

“The deal was priced just a few days after the price of a barrel of WTI crude slipped into negative.”

Best practice and innovation

On 27th April 2020, the company announced its intention to launch its ten-year tenor US dollar benchmark transaction subject to market conditions.

After conducting a global investor call and several one-to-one calls, Lukoil took advantage of the market window and released initial price thoughts (IPTs) in the 4.25% area in the morning of 28th April, with books being covered shortly after the announcement.

Following the release of a final price guidance in the 4% area (+/-0.125%), books peaked at ~US$3.6bn, allowing Lukoil to proceed with launching the transaction at the tighter end of the range at 3.875% yield and achieve the desired deal size of US$1.5bn.

The final yield represented the lowest ever achieved by the company and second lowest by a Russian issuer for a ten-year tenor, implying a concession of ~12.5bps, notably inside other global oil and gas peers and the tightest for an investment grade (IG) corporate since the start of the volatility.

Key benefits

• • Issue rated BBB+ by Fitch and BBB by S&P.
  • Orderbook peaked at US$3.6bn, 190 investors.
  • Strong investor appetite – almost half asset/fund managers:
    • By geography – US 24%, Russia 24%, Europe (ex Switz.) 21%, Switz. 15%, UK 10%, Asia 6%.

• Company satisfied its US$1.5bn target at preferential price.

This transaction marks the successful return of Lukoil to the Eurobond market after more than three years of absence and is the first CEEMEA US dollar corporate transaction since the beginning of March, having successfully navigated through volatile markets driven by COVID-19 and the backdrop in oil prices.

“This is the lowest ten-year Eurobond coupon ever achieved by our company and the second lowest by a Russian issuer.”

This transaction has created an efficient extension of Lukoil’s Eurobond debt profile via the establishment of a liquid benchmark and achieved a final NIP of ~12.5 bps, the lowest by an IG corporate issuer since the start of the volatility, demonstrating investors’ confidence in Lukoil’s strong credit story and scarcity value.

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