Corporate Communications

VTB plans Islamic bonds

23 March 2009

IFR

March 21, 2009

VTB, Russia’s second-largest bank, is considering raising funds in the Middle East through the sukuk market to the tune of several hundred million dollars, according to Yuri Soloviev, chair man of the banking group’s investment arm, VTB Capital. If VTB manages to print an Islamic bond, it will become the first Russian sukuk issuer.

“We are looking for opportunities for ourselves as well as for our clients”. Said Soloviev, who pointed out that several Russian companies were interested in tapping the Islamic market, notably quasi-sovereigns with sound finances, such as VTB. However, many bankers in Dubai and London are skeptical about VTB’s sukuk ambitions.

“It will be very difficult for a new issuer to penetrate a conservative Sharia-compliant market, raising many questions on how the proceeds will be used,” said one official in Dubai.

“There is no market for VTB in the Gulf at the moment,” according to a London-based origination manager, who did not exclude the possibility when and if market conditions improve.

A banker in Manama was more hopeful, suggesting that VTB might be able to print sukuk after Ramadan – which ends around September 20 – through the subsidiary it is setting up in Dubai or its joint venture with Liquidity Management House in Kuwait, though he was unsure where the first Russian sukuk would price, other than saying “it will be very interesting”.

Last Friday VTB Capital signed an MoU with Liquidity Management House, which is a wholly owned subsidiary of Kuwait Finance House, to introduce Sharia-compliant products to Russia and CIS.

Any proceeds from new supply could be used for energy and transport projects, according to Soloviev, who expressed confidence that these plans would turn into real deals.

VTB Group companies have previously raised funds in Russian roubles, euros, US dollars, sterling and Ukrainian hryvna.

Russian credits have never hidden their ambitions to tap the Islamic market and an Islamic bank is due to set up shop in Moscow as part of the city’s bid to become one of the world’s leading financial centres.

“Reminiscent of the first securitization deals in the country, someone has to pioneer Islamic issuance for others to follow,” said one senior banker in Moscow, who would not be surprised to see Russian credits tapping the sukuk market and opening Islamic windows.


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