TNK-BP’s Benchmark

After a two-year break, TNK-BP is preparing for a return to the Western debt market. The company intends to issue at least $500 mln in eurobonds.

A roadshow in support of TNK-BP’s new eurobond issue will kick off next Friday, sources at two investment banks told Vedomosti. The debt issue will be co-arranged by Barclays Capital, Calyon and Royal Bank of Scotland (RBS). The placement is expected next week, its exact parameters will be driven by the market. For the time being, this is anticipated to become a “benchmark” issue denominated in dollars, according to our sources. This means that the placement will raise $500 mln or more, according to one of them.

No other details of the bond issue are currently available. A spokesman for TNK-BP only says that the proceeds will be used to finance current operations and to refinance debt. A Barclays Capital representative refused to comment, while his colleagues from Calyon and RBS were not available to answer to Vedomosti’s inquiries.

After its debut on the ruble debt market back in 1999, TNK tapped the Western markets in 2002. The company’s last eurobond issues were placed before the crisis. At present, the company has $4.5 bln in outstanding debt, maturing in 2011—2018, with the most recent $600 mln issue placed on October 13, 2007 carrying a 7.5% coupon and having a term of 5.5 years.

If TNK-BP were to place $500 mln in 5-year bonds today, they would cost less, at ca. 7%, says Mikhail Galkin, an analyst with VTB Capital: the market is very favorable as funds are building new portfolios in the beginning of the year. At the same time, TNK-BP has a strong capacity for new borrowings. The company’s net debt stood at mere $5 bln as of the end of 2009, only 0.5 of its expected EBITDA, according to Denis Borisov, an analyst with Bank Moskvy.

-TNK-BP

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