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Bloomberg 23.05.2014 Fedor Bizikov's comment Pipeline Tycoon’s Bonds Revel in $55 Billion Deal: Russia Credit

May 23 (Bloomberg) -- Some of the biggest winners in Russian President Vladimir Putin’s gas deal with China are bondholders in billionaire Dmitry Pumpyansky’s pipeline company.
Yields on the April 2020 dollar bonds of Pumpyansky’s OAO TMK, the world’s biggest maker of pipes for the oil and gas industry by volume, sank 111 basis points this week to 7.94 percent, the lowest in 2 1/2 months, as the 30-year gas supply contract was signed in Shanghai. The decline contrasts with zero change in the average emerging-market corporate yield, according to JPMorgan Chase & Co. data.
As the main supplier to Russia’s natural gas monopoly, TMK is set to benefit as OAO Gazprom spends $55 billion to develop Siberian reserves and buy pipelines. Putin called the agreement paying state-run Gazprom $400 billion an “epochal event” as Russia deepens ties to China amid soured relations with the U.S. and European Union.
It “secures long-term demand for TMK’s product,” Richard Segal, head of international credit strategy at Jefferies International Ltd. in London, said by e-mail on May 22. “The shipments will be relatively large and it’s a strategically important deal, which implies less cancellation risk and price sensitivity.”
The deal follows more than a decade of talks between China and Russia, which gets about half of its income from the oil and gas industry. Russia’s benchmark February 2027 bond yield dropped 18 basis points this week to a 2 1/2 month low of 8.82 percent on May 21.
Putin Loyalist
Pumpyansky, who controls about 72 percent of TMK, has been a Putin loyalist, saying before the 2012 presidential election that a clear-cut first-round victory is preferable for big business.
TMK will “most definitely” participate in the tender for the China pipeline construction, Maria Radchenko, an analyst at BCS Financial Group, said by phone from Moscow on May 22. “TMK has been working with Gazprom for a long time, it’s an important contractor, and they have capacity to grow their production.”
The rally in TMK’s 2020 bonds erased a yield premium of 33 basis points over similar-maturity debt of Evraz Plc, the world’s largest rail producer. TMK’s yield was 47 basis points below Evraz yesterday, data compiled by Bloomberg show. It should stay at least 30 basis points below Evraz as TMK has a more “stable” financial position, Radchenko said.
The press services at TMK and Gazprom didn’t respond to calls and e-mails after business hours yesterday.
Building Expenses
While the agreement is positive from a “strategic point of view,” it probably doesn’t justify the expense of building a pipeline to China and developing giant fields in eastern Siberia, according to a report by Moscow-based analyst Ildar Davletshin at Renaissance Capital Ltd.
The yield on Gazprom’s February 2020 dollar bonds dropped eight basis points within two days of the deal’s announcement on May 21, compared with 95 basis points for TMK. That cut TMK’s yield premium over Gazprom to the narrowest since March 3, according to data compiled by Bloomberg.
“This deal provides certainty in TMK’s financial future,” Fedor Bizikov, who oversees about $2 billion as a fund manager at GHP Group in Moscow, said by phone on May 22.