Special comment on the placement of FGC UES ruble Eurobonds

FGC UES (Baa3/BBB/-) is looking to place ruble Eurobonds. Last week it launched a road-show with investors.
Within the LPN programme the issuer might place up to 100 billion rubles.
According to the issuer managers, the first placement will amount to 30–50 billion rubles, with a 6.25-year tenor and the benchmark coupon rate of 8.625%.
In our opinion, the fair yield for the ruble Eurobonds FGC UES-19 is in the range of 8.35–8.45% per annum. Thus, the premium is 20–30 b. p.

Key points:
• The company’s debt is mainly comprised by long-term loans (the weighted average duration is 4.1 years).
• Net debt/EBITDA increased to 1.6х in H1 2012 against 1.3х at the year’s start.
• In mid-May it announced the merger of IDGC Holding and FGC; in November the company reported that IDGC Holding would be renamed as Russian Networks with the state interest in FGC to be included in the new company’s authorized capital. The news poses some risks as to the uncertainty of debt repayment by both issuers after the merger.
• In October 2012 the volume of unused credit lines totalled 112.5 billion rubles.
• In H1 2012 the company reported the revenue of 67 billion rubles, -6% y/y.
• EBITDA for H1 2012 totalled 37.8 billion rubles, which is 17% less than a year before.
• H1 net profit totalled 3.9 billion rubles, whereas last year the company reported 43.9 billion rubles.