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VTB Capital Spread Book: TNK-BP’s curve is too flat

May 3, 2012
Spread of TMENRU 16 looks excessively wide. Following yesterday’s strong performance by Russian non-government Eurobonds, we would like to highlight some spread discrepancies on TNK-BP’s yield curve. Specifically, the spread between TMENRU 16 and TMENRU 18 turned positive as the former underperformed. As of now, the spread stands at 10bp against the 12-month average of minus 15bp. We would recommend that investors treat the aforementioned spread discrepancy as a relative value investment opportunity as we see no fundamental reasons for the issuer’s yield curve to remain inverted. 

TNK-BP’s curve is the flattest in the high grade Eurobond universe. We also note that in most cases, sovereign and high grade Russian Eurobonds yield curves, as well as the sovereign CDS curve, have a positive slope averaging 30-60bp for 3-6 year maturities. TNK-BP’s Eurobond yield curve looks unreasonably flat in this regard. Hence we would recommend buying TMENRU 16 with a potential spread tightening of 30-50bp, which might translate into 1-2pp price appreciation respectively.
  • Status
  • Country of risk
  • Redemption (put/call option)
    *** (***)
  • Amount
    1,000,000,000 USD
  • М/S&P/F
    — / — / —
Company — RN Holding
  • Full name
    Open Joint Stock Company RN Holding
  • Registration country
  • Industry
    Oil and gas