Gazprom has announced a consent offer on its £500m 5.338% 2020 notes to lessen the probability of a knockout event if the euro depreciates against sterling.
Investors that agree to the terms by August 3 will receive £2.50 for every £1,000 in principal notes subject to the offer. Those that consent by August 13 will receive £1.50.
“The structure of this bond is peculiar – it is an LPN (as all Russian corporate Eurobonds are), the paper is denominated in pounds, but the underlying loan is in euros,” said Alexey Bulgakov, credit analyst at Sberbank.
Gaz Capital, the issuing entity, hedges the interest and redemption flows with the arranging international banks via two currency swaps with the structure of flows being identical to the flow structure of the bonds.
Both swaps are terminated, however, once the EUR/GBP exchange rate reaches 0.6452 (or GBP/EUR 1.55).
Gazprom is seeking agreement to lower the knock-out level in each of the swap arrangements from £0.64520/€1.00 and then to allow the parties from time to time to agree to amend it further within the permitted range.
“[GBP/EUR] is currently at 1.45. If the swaps are terminated, nothing would change for the holders of the bonds, but Gazprom would have to carry the conversion risk itself. The bond conditions specify that the company cannot prepay the loan if the swaps are terminated,” added Bulgakov.
Deutsche Bank and JP Morgan are the solicitation agents.
