Russian eurobonds: Recommendation for ChelPipe
Искандер Луцко
Chelyabinsk steel pipe (ChelPipe) USD Eurobond placement on primary market
Opening date: 12.09.2019
Target price: +3,8% price, 70-75 bps yield decline
The order book closes today at 16:30 Moscow time.
We called Chelyabinsk (Ba3/BB-) the most attractive of announced debut issues in our recent research
The announced indicative yield is 4.75–5%, significantly higher than our 4% yields to maturity estimate. Therefore, the current indicator premium is 145-160 bp to the metal sector curve
We believe that the debut ChelPipe issue should trade at a 70 bps premium to Evraz 24, given higher credit quality and debt burden
Therefore, after the placement the price upside should reach 4% in near term
At the same time, ChelPipe yield should be lower than that of GTLK, given that ChelPipe’s net debt/EBITDA is five times lower
Average premium in the primary market, bps
Source: ITI Capital, Bloomberg
ChelPipe: A leader in the Russian tubular products market
ChelPipe is among the world's top 10 pipe companies, a major domestic producers of tubular products, its share in the Russian tubular goods output is about 17%. ChelPipe Group is comprised of ferrous industry companies, oilfield services providers and manufacturers of main-line equipment. The company offers integrated solutions for the O&G and power engineering. The company's business strengths include a significant share of high value-added products and long-term relationships with key customers. The Company is committed to a balanced investment policy and implements operational improvements. In 2019, ChelPipe has increased its order book by concluding supply contracts for gas pipelines construction projects in Kazakhstan and Turkmenistan
In 2018, the Company improved its financial performance and reduced its debt. The group's revenue reached 178.8 bln roubles. (+13% yoy), EBITDA margin grew to 15.8% (2017: 14.9%, and net profit amounted to 178.8 bln roubles. (+13% yoy). Net debt/EBITDA dropped to 2.4x from to 2.9x in 2017 and remained stable in 1H2019
Fitch has upgraded its rating on Severstal to BBB from BBB- on 8 April, the outlook is stable. The upgrade reflected conservative financial policy, very low steel-making costs, focus on high-value added products, and modest capex
Russian corporate bonds yield curve
Source: ITI Capital, Bloomberg