June 21 (Bloomberg)
By Arif Sharif and Camilla Hall
VTB Capital, the investment banking unit of Russia's second-biggest bank, has mandates to manage the sale of at least three Islamic bonds for Russian companies, each of which could raise between $200 million and $500 million.
VTB, which announced the opening of an office in Dubai to add to its presence in London and Singapore, will soon begin the sale of these Islamic bonds, or sukuk, Yuri Soloviev, VTB Capital's president and chief executive officer, said in an interview in Dubai today. Some of them are "asset finance sukuk, aircraft financing structures," he said.
The market for Islamic bonds ballooned from almost nothing in 2002 to $90 billion last year as an economic boom, spurred by surging oil prices, increased borrowing in the Gulf and Asia. Saudi Electricity Co., the state-controlled power producer that starts a sukuk sale from June 13 to June 28, may raise as much as $1.87 billion in the largest sale of Islamic bonds this year as the market for Shariah-compliant debt shows signs of revival.
"We have got very strong interest from a number of Russian issuers, who are watching this space," Soloviev said. "If the first few are successful we will have a surge of interest."
Islamic bonds comply with Shariah law by using asset returns to pay investors instead of interest. Defaults in the sukuk market have been rising as the global financial crisis squeezed credit for businesses in the Gulf region, which produces about 20 percent of the world's oil.
VTB, part of the Russian banking group by the same name, also hopes to raise at least 1 billion euros ($1.4 billion) for a joint venture infrastructure fund, Soloviev said. The fund was set up in partnership with Kuwait's Fouad Alghanim & Sons Co. General Trading & Contracting and Russian utility OAO Inter Roa UES earlier this month. The first closing of the fund, which will mainly invest in power projects in Russia and the Middle East, is expected by the end of this year.
VTB Group said June 19 it sold 14.5 billion rubles ($465 million) of mortgage-backed bonds. The bonds are backed by more than 11,000 mortgages given out by VTB-24, the bank's retail-lending arm, the bank said. Two of the three classes of notes sold have coupons of 10.5 percent and 11 percent, VTB said.
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