Fixed Income Weekly
- CenTel-5
- OMZ-5
- Avtomir-Finance...

CenterTelecom-5

CenterTelecom is very well-known on the rouble bond market. It is one of the seven regional fixed-line telecoms of the Svyazinvest holding operating in central Russia, mainly in the areas surrounding Moscow.

Net sales of CenterTelecom amounted to USD1014m in 2005. This value was the second largest among all Svyazinvest telecoms after UralSvyazInform.

The funds from the new bond (~USD110m) will be entirely used to refinance the outstanding debt of CenterTelecom, hence are not expected to substantially increase the net debt position of the issuer.

Due to the traditional popularity of CenTel’s bonds on the rouble bond market, the credit of the company is very likely to be correctly priced at the auction, if not overpriced. Besides, CenTel-5 will be a relatively small and relatively short bond, offering only limited speculative upside even with significant market movements.

The new bond has two distinct disadvantages compared to CenTel-4: it will have lower liquidity due to smaller size, and it will be closed for registration for a month or so. Besides, a primary placement premium should also be given, as investors know very well that the company needs new funds to redeem CenTel-3. We estimate the cost of the latter three factors at 20-30bp in yield.
Therefore, we believe that the fair range for the YTP of CenTel-5 at the upcoming auction is 8.4-8.5%.


OMZ-5

OAO OMZ – formerly Uralmash-Izhora Group – was established in 1996. OMZ is one of the biggest heavy industry companies, producing key parts for nuclear reactors and other equipment.

75% of OMZ’s stock belongs to Gazprombank, which represents an undisclosed group of investors and is said to be related to the government structure Rosatom. Another major shareholder Forpost-management – company affiliated with Gazprombank, holding 20% of OMZ.

The lead managers of the issue are marketing OMZ-5 with a YTP for 3 years in the range 9.5%-9.9%. The upper point gives 20bp. discount to the Motoviliha prolonged yield curve and approximate discount of 80-90bp. to corresponding PMZ point (10.8%-10.9%).

Still, as we believe that OMZ is an object of high strategic importance for the Russian government, we expect the com-pany soon to become state-owned. This condition might create indulgent attitude of investors towards OMZ, making them shut eyes on the company weak points in credit profile.

We estimate fair level of OMZ-5 to be in the range 9.50%-9.75%, due to indirect state control in OMZ, but at the same time noting poor credit quality of the company. However, the soon possible disclosure of state ownership in OMZ, together with the rating from S&P, may attract high interest at the primary placement and bring OMZ YTP below 9.5%.


Avtomir-Finance

Avtomir Group, created in 1993, is one of the leaders in Russian auto retail sales. It’s portfolio of dealer agreements with world majors includes Chevrolet, Opel, Ford, Suzuki, Volkswagen, Nissan, KIA, Hyundai, Cetroen, Renault, Dawoo, Skoda, with Mitsubishi joining in November 2006 and a letter of intentions signed with Mazda Motors. Lada and Gaz represent Russian car producers in Avtomir’s trading centres.

Avtomir sales are channelled through 21 multi-brand sales-and-maintenance centres. Geographically retail outlets are heavily concentrated in the Central region of Russia with most of them located in Moscow. In other regions Avtomir operates wholesale business with a limited number of brands presented. Wholesale operations cover 60 towns.

Bonds are to be issued on behalf of Avtomir-Finance an SPV controlled by Avtomir Group. ZAO “NP AVTOMIR” – holding company, OOO “Rusavtosbyt” (Lada, Gaz and KIA dealer) and OOO “Rusoptsnab” (Suzuki, Renault, Cetroen, Hyundai, Chery dealer) are guarantors for the issue.

Two factors must be considered in pricing decision. On the positive side is the size factor while on the negative is the debut character of the placement and a premium which is likely to be required at the auction. Given the analysis above, the fair range for Avtomir placement is 11.85-12.05% before considering any debut premium.