Russia’s finance ministry is planning to raise an additional $1.25bn in dollar bonds, in a further sign of robust investor appetite for emerging market debt.
The proposed new borrowing comes after Russia returned to international capital markets last May with a $1.75bn bond. The issue was Russia’s first since the US and EU passed sanctions against Moscow over the annexation of Crimea and the eastern Ukrainian conflict.
Russia’s benchmark bond sold in May with a fixed coupon of 4.75 per cent has delivered a robust return for buyers, currently trading at 107.6 cents on the dollar, up from par at the date of issuance.
“There are deeper structural problems, but Russia is still on a standalone basis an extremely strong credit,” said Viktor Szabo, an investment manager at Aberdeen Asset Management.
“[There is a] very low debt level, the current account is still in surplus, [there are] decent size FX reserves and obviously they have a higher budget deficit but even the shock from the oil price is manageable. The next big question is where growth will come from,” he added.
The May issue was complicated by the question whether it would be eligible for international clearing, which affects the ease with which global investors can buy or sell the bond. VTB, the Russian bank on the deal, said three-quarters of the May sale was bought by investors outside Russia, a claim that raised significant scepticism on the market as most major funds steered clear of the bond.
The bond eventually did become eligible for international clearing at the end of July, at which point it jumped sharply in price.
Timothy Ash, economist at Nomura, said Euroclear’s acceptance should make the latest issue easier, but added that potential buyers will have to feel comfortable with statements in the documents regarding the use of the proceeds and sanctions.
He added the original deal was a “PR exercise”, that the bulk of the investor base stayed on the sidelines, and that a total of $3bn raised was not a “game-changer”.
State-run VTB Capital, which is also under sanctions, is the sole bank acting on the deal.