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August 04, 2010

Halyk Finance opened trade in Kazatomprom’s Eurobonds

On May 3, 2010, Halyk Finance as a market-maker opened trade in Kazatomprom’s Eurobonds (KZAPe1) on KASE. The total size of the issue was $500mn, although only $50mn was placed among Kazakh investors. TH bonds has 6.25% fixed-rate coupon and matures in May 2015. On KASE, the Eurobond was listed as a ‘rated debt security’, and as such, could not be traded without market-maker’s consent.
The National Atomic Company Kazatomprom is a national uranium operator fully-owned by the Government of Kazakhstan, with issuer rating of BBB- by S&P, Baa2 by Moody’s, and BBB- by Fitch. Kazatomprom is in the government list of strategic companies, which ensures strong sovereign support. Kazakhstan has second largest reserves of uranium in the world and in 2009 overtook Canada as the world’s top producer uranium oxide.
Inaugural for Kazatomprom, the Eurobond had two novel elements. To avoid withholding taxes, Kazatomprom issued the Eurobond directly, rather than through an SPV, a practice that is gaining popularity in Kazakhstan. Also, in a nod to regulatory requirements, 10% of the issue was placed in Kazakhstan.
The issue, rated BBB- by Fitch and Baa3 by Moody’s, was snapped up at the time of placement, with the order book eight times the offering. In the process, the coupon, originally guided at 6.75%, was lowered to become one of the lowest among the placements originating in the emerging markets in recent times.
Investors from the US and Europe each acquired close to 45% of the issue, with the Asian investors trailing far behind. Since then, the YTM has declined even further in international markets. The bond is currently bid on KASE with YTM of 5.5% and offered with YTM of 3.5%.

Disclosure. JP Morgan and BNP Paribas acted as joint lead-managers and book-runners of the issue. Halyk Finance was Kazakhstan lead manager.

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