Biggest Bank Bond Rush Since September Fueled by Low Yields: Russia Credit

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  • Posted on April 22, 2011

    Russian banks sold more than $2 billion of dollar-denominated bonds this month, the most since September, after yields sank to records.

    Alfa Bank issued $1 billion of 10-year bonds this week, the longest maturity ever for the Moscow-based lender, adding to at least $1 billion that Promsvyazbank, Renaissance Credit and Tinkoff Credit Systems sold, according to data compiled by Bloomberg. Alfa’s 2017 dollar bonds yielded 6.875 percent yesterday, 16 basis points away from an all-time low on April 8.

    The banks, all of them privately owned and rated below investment grade, are tapping international markets as oil above $100 a barrel boosts demand for Russian assets and lifts the ruble. The glut of sales by the banks may also indicate that the lenders expect yields to rise, said Sebastien de Prinsac, director of fixed income at OAO Gazprombank in Moscow.

    “This is an opportunistic move by these banks as they feel that they may not be able to borrow at these low levels before long,” de Prinsac said by e-mail. “The general feeling is that the market has reached its top and should correct before summer so they all rush to issue now.”

    Dollar debt issuance by Russian banks still lags behind that of Brazil, where lenders sold $7.1 billion of dollar bonds this year compared with Russia’s $3.3 billion, Bloomberg data show. Brazilian banks have sold $1.4 billion of securities so far this month, the figures show.

    Ruble’s Rally

    The ruble has risen 9.2 percent against the dollar this year, beating gains for the currencies in Brazil, India and China combined. It weakened 0.3 percent to 28.0100 per dollar by 3:39 p.m. Moscow today, falling from its strongest level since December 2008. Non-deliverable forwards, which provide a guide to expectations, show it at 28.2325 in three months.

    The yield on the ruble Eurobond due in 2018 fell 29 basis points, or 0.29 percentage point, to 6.716 percent yesterday, the lowest level since it was sold in February. The yield on Russia’s 2020 dollar bonds rose three basis points to 4.913 percent.

    The cost of protecting Russian debt against non-payment for five years using credit-default swaps fell two basis points to 130 yesterday, down from 177 on Nov. 30, according to data provider CMA. Russia is rated Baa1 by Moody’s Investors Service, its third-lowest investment grade rating.

    The swaps cost 22 basis points less than contracts for Turkey, which is rated four levels lower at Ba2. Russian swaps cost as much as 22 basis points more on Nov. 29.

    U.S. Spread

    The extra yield investors demand to hold Russian debt rather than U.S. Treasuries was unchanged at 177, according to JPMorgan Chase & Co.’s EMBI+ indexes. The difference compares with 134 for debt of similarly rated Mexico and 175 for Brazil, two steps lower at Baa3 by Moody’s.

    The yield spread on Russian bonds is 87 basis points below the average for emerging markets, down from a 15-month high of 105 in February 2010, according to JPMorgan indexes.

    The number of Russian banks selling dollar bonds so far this month is the most since July, when also four lenders issued debt, according to Bloomberg data. Russian banks sold $2.5 billion of dollar bonds in September.

    Alfa Bank sold 10-year bonds yielding 7.75 percent, the first sale of foreign debt for the lender since September when it sold $1 billion of seven-year notes. The notes are yielding 7.673 percent today, according to data compiled by Bloomberg.

    The sale shows the strength of the bank after “exceptionally good financial results,” Chief Financial Officer Andrew Baxter said in a statement on the bank’s website on April 11. Alfa increased net income sevenfold for 2010 to $553 million, the highest annual profit on record.

    Tinkoff, Renaissance

    Moscow-based Tinkoff Credit Systems, a consumer lender rated B2 by Moody’s, five levels below investment grade, sold $175 million of three-year debut bonds at 11.5 percent on April 14. Renaissance Credit, ranked one notch higher at B1, sold $325 million of 11 percent bonds puttable in 2014 the following day. That compares with a 15 percent yield the Moscow bank offered investors on $100 million of two-year bonds in December 2009.

    Promsvyazbank, Russia’s third-biggest private bank, sold $500 million, its biggest offering of dollar debt, of three-year notes yielding 6.2 percent on April 14. The yield on the bank’s 2015 dollar bonds tumbled to a low of 7.582 percent yesterday.

    “The theme is clearly to take advantage of the very positive sentiment towards Russian risk right now,” James Croft, head of emerging market fixed-income trading at Mitsubishi UFJ Securities in London, said by e-mail. “As long as oil remains firm it will be okay for Russia.”

    It also makes sense for Promsvyazbank and Alfa Bank to sell dollar bonds to lock in low borrowing costs because they both have debt maturing this year, according to Sergey Dergachev, who helps manage $9.6 billion at Union Investment in Frankfurt. Alfa has dollar bonds due in December, while Promsvyazbank needs to redeem $225 million of debt in October, Bloomberg data show.

    The sales are unlikely to be followed by large state banks, including OAO Sberbank or VTB Group, as they are much less “opportunistic” and “market sensitive” than smaller lenders, Dergachev said in an e-mail.

    To contact the reporters on this story: Denis Maternovsky in Moscow at

    To contact the editor responsible for this story: Gavin Serkin at


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