Russia plans to sell more than 230 billion rubles in bonds before year end, Finance... Read More
The Finance Ministry sold all 10 billion rubles ($261 million) of securities due in August 2023 today at an average yield of 9.37 percent in the first sale since U.S. and European Union sanctions in July drove up the nation’s borrowing costs by the most in emerging markets. Russian corporates are also returning, with OAO Alfa Bank and OAO Gazprombank among companies issuing bonds in September at the fastest pace in three months.
Russia’s borrowers are coming to terms with the higher price they need to pay to access cash after escalating penalties choked off their access to
Western funds, according to UralSib Asset Management. Signs a Sept. 5 truce between the government in Kiev and pro-Russian separatists is holding has pushed yields lower by fueling speculation among investors that sanctions won’t be expanded.
“The Finance Ministry is trying to normalize the situation and signal it sees improvements in the environment,” Konstantin Nemnov, the head of fixed income at TKB BNP Paribas Investment Partners in St. Petersburg, said by phone yesterday. “Issuance is starting to come back to life as companies get enough investor attention to sell bonds.”
Investors submitted bids valued at 47.5 billion rubles, and the notes were sold to a single buyer, according to the ministry and data compiled by Bloomberg.
Yields Drop
With the cease-fire in eastern Ukraine approaching its third week, the yield on 10-year government bonds has dropped 41 basis points this month to 9.39 percent today, the lowest since Aug. 27. Russia’s corporate bonds returned 1.6 percent in September, the most in emerging Europe after Ukraine in the Bloomberg USD Emerging Market Corporate Bond Index (BEMC), while a gauge of the nation’s sovereign debt ended a two-month rout.Russian companies have raised 54 billion rubles this month, up 46 percent from the August total and compared with 157 billion rubles in June, according to data compiled by Bloomberg that exclude sanctioned issuers.
OAO Gazprombank, under U.S. penalties since July, sold 10 billion rubles of notes yesterday with a coupon of 10.8 percent, compared with 9.6 percent for similar notes issued in June and 7.7 percent in October last year.
Domestic Funding
“When western markets are shut, the biggest banks have to use all available sources of funding inside the country,” Alexey Tretyakov, a money manager at Aricapital Asset Management in Moscow, said by e-mail yesterday. The Ukraine truce “reduces the risk of new sanctions and the risk that conditions on the debt markets will worsen,” he said.The world’s largest energy exporter has been able to stay away from the debt market as the ruble’s depreciation helped boost the local-currency value of oil and gas sales, which provide half of the country’s budget revenue. The currency rose 0.7 percent to 38.3575 per dollar at 2:07 p.m. in Moscow, paring this year’s decline to 14 percent, the most among 31 major currencies tracked by Bloomberg after Argentina’s peso.
Russia plans to sell more than 230 billion rubles in bonds before year end, Finance Minister Anton Siluanov said at government meeting Sept. 11, more than twice as much as it has sold on the market so far in 2014.
‘No Stampede’
How long the sales window stays open “totally depends on the situation in Ukraine,” Dmitry Dudkin, the head of fixed-income research at UralSib Capital in Moscow, said by e-mail yesterday. “If things stay how they are, the window may last until the end of 2014. But it’s not going to be a stampede.”German Chancellor Angela Merkel said yesterday Russia hasn’t stopped destabilizing eastern Ukraine and told German industry leaders their support for sanctions against President Vladimir Putin has been crucial.
As sanctions blocked access to Western capital markets for some of Russia’s biggest corporate borrowers, including OAO Sberbank and oil producer OAO Rosneft, local funding conditions were strained as the central bank raised interest rates by 250 basis points since Putin’s incursion into Crimea in March.
The pipeline of debt offerings is growing. OAO Rosbank (ROSB), which has 15 billion rubles of securities coming due before year-end, marketed 10 billion rubles of 10-year bonds yesterday. OAO Promsvyazbank and AKB Peresvet are offering a combined 8 billion rubles of debt later this month.
“This is an opportune time for Russia to resume its debt sales,” Nicholas Spiro, managing director at London-based Spiro Sovereign Strategy, said by e-mail yesterday. “The recent improvement in sentiment towards Russian assets stems not from a genuine and meaningful de-escalation of the Ukrainian crisis, but rather from a lull in the fighting in eastern Ukraine.”
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