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Interview by Andrey Solovyev, Global Head of DCM at VTB Capital, for Interfax

28 May 2013
Russian Eurobond issue destined for success even in summer



The Russian Finance Ministry is due to name the organizers of a sovereign Eurobond placement soon. Borrowing on the external markets this year has been capped at $7 billion. Andrey Solovyev, global head of Debt Capital Markets at VTB Capital, discussed the market's expectations for a sovereign bond issue and how the placement could affect the debt market for Russian issuers in an interview with Interfax.

- What do you expect to see on the market in the near future?

- Finance Ministry officials have said the organizers of a Eurobond placement will be named before long. A sovereign bond placement will certainly be a very big event, just as big as last year's sovereign Eurobond placement. It's certain to be a success - there is every reason for that.

- In your opinion, are there issuers who are waiting for a sovereign Eurobond issue to follow this up with Eurobond placements of their own?

- I wouldn't rule that out. We had a similar situation a year ago, but the Finance Ministry hit the market earlier then, in March, when reporting by issuers was still fresh. But even so there's a range of more "advanced" issuers in Russia who always have financial reporting at the ready and who are always updating financial documentation. So you could expect to see some quasi-sovereigns who will be looking to sovereign Eurobonds for guidance. They are usually heavily oversubscribed when they do sell, and usually a there's a lot of excess demand that can be tapped when other Eurobonds are placed.

- In general, how do you rate the quantity and volume of recent placements?

- The first months of the year were successful for Russia, with some 50 issues worth $30 billion in total, almost twice as much as last year, when $17 billion in paper had been sold by that time.

We used to view 2012 as a record year, but I'm inclined to think new records will be set this year.

- How many mandates do you have to organize Eurobond placements?

- We and other banks have a certain amount in hand and we'll be trying to place all of them.

- Do you expect the market to activate any further after sovereign Eurobonds have been placed?

- That was the effect we had in the last two years. Following a sovereign placement the credit limit on Russia was increased, there was as a result excess demand and issuers that waited for sovereign placements were as a rule able to place very successfully.

A sovereign placement gives the market a new benchmark, and enables it to lower the benchmarks for corporate and financial borrowers. Effectively this lowers yields. In addition we now certainly have the most favorable situation in the international capital markets, with yields at all-time lows at which it is possible to place bonds.

- Who might we see apart from the Finance Ministry?

- I think you'll see some very imposing names, which I can't disclose right now.

- Andrei Kostin, the head of VTB, has said Basel III might dramatically influence banking capital. Do you not see any desire by banks to issue subordinated Eurobonds and include them in their capital?

- We can see this happening. Two deals have already taken place with the new Basel in mind: Sberbank (RTS: SBER) and Credit Bank of Moscow. I'm sure there'll be others. This will be popular among Russian banks.

- The issue of exempting interest on Russian Eurobonds from tax has not yet been legally resolved. Are investors asking you about this?

- We started to discuss this back in December 2011. When the Finance Ministry placed last year there were a lot of questions on this subject from investors. Then they got a straight answer, that the problem had been solved and this was no longer an issue as such. We don't see that investors are still interested in this issue.

- Could a sovereign Eurobond placement be a success in June-July?

- This is more a question for the Finance Ministry. I'm sure it would be a success: Russia is such a first-rate borrower that if it were to place bonds in the summer then investors would all forget about their bathing costumes and champagne and start buying Russia. This is definitely the best risk that you can get from Russia or anywhere in the former USSR. Everybody without doubt feels comfortable with Russian Eurobonds, they always trade well.

There are also some extremely favorable historical conditions. The sooner Russia places the better, although this is definitely a transaction that, regardless of the circumstances, is destined for success.

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