Special commentary on Gazprombank’s ruble Eurobond placement

Gazprombank (Baa3/BBB–/-) is planning a placement of ruble Eurobonds. According to the issue managers, the tenor of the new issue worth about 10 billion rubles will be 3.25 years. The rate will be defined at placement
In our view, positioning of the planned issue of Gazprombank (Baa3/BBB-/-) should be based on the circulating ruble Eurobonds of Russian Agricultural Bank (Ваа1/-/ВВВ).
Meanwhile, circulating ruble Eurobonds (RZD, RSHB) trade with a spread of about 70-80 b. p. to ruble local bonds. Thus, the fair yield on the new ruble Eurobond of Gazprombank ranges between 8.0-8.1% per annum, which means a premium to the curve of RSHB ruble bonds of about 50-60 b. p.

Key points:
• Loan portfolio had increased 20% to 1.7 trillion rubles during H1 2012, which considerably outpaced the average sector growth of 8% for the same period.
• Meanwhile, retail lending grew 18% to 169 billion rubles; the share of corporate lending increased 20.5% to 1.58 trillion rubles.
• Loan portfolio quality had improved in H1: the share of NPL in the total volume had contracted to 1.1% from 1.4% in 2011. The bank’s loan portfolio performed better than banks on average with NPL share of 4%.
• The aggregate amount of NPL totalled 18.5 billion rubles against 20.6 billion rubles at the year’s start.
• Provisions for loan impairment grew 4% in H1 compared to the beginning of the year (60.2 billion rubles).
• Net profit totalled 10.6 billion rubles in H1 2012 against 38 billion rubles in H1 2011.