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MKB co-arranged RUB 100 bln "green" perpetuals for RZD

25.09.2020

Credit Bank of Moscow (MKB) co-arranged the first-in-Russia issue of perpetual bonds compliant with ICMA's green bond principles. Its amount reached 100 bln roubles, the absolute record for a bond market placement by Russian corporate issuers.

The order book was built on 24 September and allowed RZD to decide on a 165-bps spread over the five-year G-curve of OFZ, meaning the first coupon rate of 7.25% per annum.

The issue has five-year call options, and the rate will step up by 50 and 45 bps if the issuer does not exercise the first and second call options, respectively.

During the book building process, the demand strongly exceeded the initial supply, prompting the issuer to resize the offering from 20 to 100 bln roubles, setting the absolute record for a bond market placement by Russian corporate issuers.

Expert RA opined on 18 September 2020 that this issue of perpetual bonds meets the green bond principles (GBP) of the International Capital Market Association (ICMA) and the Russian Green Finance Guidelines promulgated by VEB.RF.

"This transaction sets another record in terms of both size and structure. Its floating rate linked to the OFZ yield and the coupon compensation mechanism make these bonds very attractive to Russian and international investors, – noted Stepan Ermolkin, Head of DCM at MKB. – Although this is already the third issue of perpetuals for RZD, it can be viewed as an addition to the company's wide range of funding tools. This transaction is also unique for the Russian market in that, of all hybrid debt/equity instruments already familiar to local investors, this one meets the international standards of "green" bonds. ESG projects are a priority for us today. In October last year, MKB became the first Russian bank to get an ESG rating (from Expert RA). We are convinced that this placement of bonds, that can be called "evergreen", will mark the debut for a new class of instruments in the Russian market".

Should RZD decide not to pay any coupons on these bonds, investors would be entitled to a compensation under the Russian Government's Order No. 1260-r dated 13.05.2020 and Decree No. 1380 dated 09.09.2020 approving the compensation mechanism.

The bonds are to be placed on Moscow Exchange on 30 September. In arranging the issue, MKB was flanked by VTB Capital, Sberbank CIB, Russian Agricultural Bank and Sovcombank.