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

23 January 2017
Global Capital
Russian Eurobond volumes to bloom, say VTB, Sberbank

Russian Eurobond volumes will be higher in 2017 as corporate borrowers rush to take advantage of strong investor demand amid expectations that the US will soften its stance on sanctions towards, say Russian bankers.

Russian bankers appear to take for granted that the US government will reduce Russian sanctions under Donald Trump’s presidency, despite the warning on Sunday from prime minister Medvedev that Russia should put aside any illusions that Western sanctions will be lifted soon.

The mood in the market was certainly positive with Russia’s sovereign bond’s 0.2-0.3 cash points tighter and Russian investment grade corporates coming in 2bp-3bp in yield terms.

“We hope that the change of administration should be helpful,” said Anton Maikov, head of capital markets and managing director at Sberbank CIB in Moscow. “We are placing no bets but people are hopeful though some acknowledge that it could take a year to soften the pressure on Russia».

Maikov said that the strong reception achieved by Russian issuers in 2016 had boosted the confidence of others tempted to access the market in 2017. All will be watching the progress of the Rusal deal with interest he noted.

The company mandated 13 banks to run its debut international bond offering last week. The B+ rated issuer will wrap up investor meetings on Wednesday.

“We need to see how the first deal [Rusal] plays out but it could trigger the appetite of issuers to come,” he said.

Russian corporates have some $25bn-$27bn of Eurobonds maturing this year, according to Maikov.
While sanctioned entities who will have to refinance in the local market make up a part of this, Maikov expects issuance to be higher than the $15bn of Eurobonds seen from Russian in 2016.

Last year corporate issuance from Russia was net negative, which added support to trades. Andrey Solovyev, global head of DCM at VTB Capital, notes that the refinancing trend will continue.

“There are still issues to refinance but I expect an increase in financing in the international markets,” he said. “Issuers are more confident that they can raise international funds. And international investors are more confident in the Russian rouble. There is definitely an expectation that sanctions will be reduced this year.”
Solovyev said he expected several debut issuers to tap the market, and that more rouble- denominated Eurobonds would be issued.

“The focus will be corporates,” he said. “They were the flavour of the year last year. We’ll see names from transportation and infrastructure and see a good number of new names coming into the mix. I expect to see an increase in overall volumes.”

The Russian government has earmarked $7bn for its 2017 funding plans, an increase on the $3bn it issued last year. According to research by Otkritie, up to $4bn of this will be used to optimise Russia’s debt stock by exchanging old bonds, for new bonds with lower coupons. Otkritie notes that Russia’s 2018 and 2028 bonds are paying the highest coupons at 11% and 12.75% respectively.

Otkritie names Gazprom, Lukoil, Severstal, Norilsk Nickel, Russian Railways and PhosAgro as probable candidates given the coming maturities these companies should be facing over 2017- 2018, as well as higher dollar rates, and GTLK, VimpelCom, Evraz and Sibur.

Western bankers are broadly more bearish on overall volumes. “We expect reasonable supply, but whether it will be as much as last year I don’t know. I would say $10bn-$12bn overall. But there are massive question marks ahead.”

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