Big hitters back Norilsk Nickel

IFR 2406 - 23 Oct 2021 - 29 Oct 2021
6 min read
EMEA, Emerging Markets
Robert Hogg

A number of prominent investors participated in the latest US$500m five-year bond from Norilsk Nickel on Wednesday, looking beyond the ecological disasters that have plagued the world's biggest nickel and palladium producer.

AIG, BlackRock, Carmignac, Citadel, Deka, Fidelity, Pictet and Union Investment were among around 120 or so accounts that contributed to a book that peaked at more than US$1.4bn, according to a source.

Although Nornickel (Baa2/BBB–/BBB–) can point to a strong credit story, its ESG credentials are more debatable.

The Russian company has found itself at the centre of ecological disasters. Last month it said it will discuss an out-of-court settlement with the state fisheries agency, which sought damages of Rbs58.7bn (US$806m) from the metals miner over a 2020 Arctic fuel spill, Reuters reported.

The company had previously paid US$2bn for environmental damages from the leak in May 2020 of 21,000 tonnes of diesel into rivers and subsoil from a storage tank at its power plant.

"Clearly during the roadshow ESG was a focus point," said a lead banker. "People said obviously 'this is a great credit so let's focus on [the ESG aspect]'.

"Over a third of the investor presentation was dedicated to ESG, on everything they have done and plan to do. Some investors got comfortable, and candidly some didn't, but that was always going to be the case."

Moody's shunted Nornickel's outlook to negative from stable in December, reflecting its "concerns over the company's internal controls and corporate governance practices", which did not seem to have been "sufficiently stringent enough given the chain of environmental accidents" that occurred in 2020.

Moody's has since said it recognises that Nornickel has made changes as a result of the accidents, and reduced its sulphur dioxide footprint along with other efforts to improve its environmental record.

"Our environmental priorities are guided by our strong commitment to minimising the impact of our operations on water, air and land, coupled with efficient waste management and a responsible approach to tailings (waste materials)," the company said on its website.

Nornickel has an environmental and climate change strategy in place, with 21 targets by 2030.

Carmignac said that as Norilsk is the world's largest provider of battery-grade A Class nickel, an investment in the company aids the promotion of the mass transition to electric cars. The various metals and minerals extracted by the company will be needed in ever greater quantities to achieve net-zero goals through PV cells, wind turbines, battery storage and conductive cabling for connectivity.

"We have engaged with the company in 2021 to discuss their past controversies and the corrective plans put in place, as part of our ongoing analysis," said Carmignac. "We are aware of the latest tragic events and we have acknowledged measures taken to rectify the situation and to ensure such events may not repeat themselves."

The other named investors declined to comment on individual investments or did not respond to a request for comment.

The bond deal came four weeks after Nornickel announced its mandate as volatile market conditions made issuance difficult.

"This is an issuer with very ambitious price targets, and last year it came 20bp inside the curve," said the banker.

"So when markets were materially deteriorating, that potential of suddenly paying 20bp–25bp was not that appealing. But Lukoil then did a large size and we had positive equity sessions on Monday and Tuesday, and the idea became that if they were going to do something this side of the year, it was now or never."

Lukoil raised US$2.3bn through a dual-tranche offering on Tuesday, the day before Nornickel opened books.

Still, there were other potential risks. The bond came just as news broke that the FBI had raided Washington and New York City homes linked to Oleg Deripaska, who is under US sanctions and owns part of Rusal via his stake in the aluminum producer's parent En+ Group. Rusal, in turn, owns a 25.5% stake in Nornickel.

The reason for the searches is unclear, and FBI spokespeople gave no details, reported Reuters. A representative for Deripaska said the homes being searched belong to relatives of the oligarch.

The other main shareholder in Nornickel is Interros, which is controlled by another oligarch Vladimir Potanin. Interros has a 34.6% stake.

Rusal and Interros have a history of shareholder disputes over the size of the metal miner's dividends and its investment in development.

"Once you trickle all the way down, Deripaska's shareholding is around 5% so it's not really material," said the banker, who added that the headlines had little impact on execution.

Nornickel opened books at 3.125%–3.25% for the no-grow October 2026 bond. The nearest point on its curve was a US$500m 2.55% September 2025 note that was bid at 2.39%, according to Tradeweb.

"Lukoil paid around 20bp so I'm sure the banks will be looking at that and say it's the base case for landing," said a second banker after Nornickel books opened. "They will think they need to start a decent bit back to get a good book, but it should be crunched pretty substantially – especially for Norilsk as one of the blue-chip names only looking for US$500m."

The book hit US$1.3bn, including US$220m from leads, which enabled pricing to be tightened to 2.80%. The first banker put the final premium at less than 10bp.

Citigroup, Societe Generale and UBS were global coordinators and were joined as bookrunners by Goldman Sachs, Mizuho, Sberbank, SMBC Nikko and VTB Capital.