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

1 March 2017
Russian Railways Eurorouble surprises With Asia allocations

Russian Railways saw strong demand from international investors for a new Eurorouble note on Monday, with Asian accounts taking an unprecedented one third of allocations.

Bankers said the combination of Russian Railways’ quasi-sovereign status and increasing confidence in the rouble following the stabilisation in oil prices helped secure high levels of international participation.

“It’s becoming common knowledge that the rouble is probably the only emerging market currency that currently offers positive carry,” said Andrey Solovyev, global head of DCM at VTB Capital.

The seven year deal was priced to yield 8.99%, just inside the revised guidance range of 9%-9.15%. Initial guidance had been set at 9.2% area. 

Bankers across the market agreed that the final level represented a zero new issue premium, based on a pre-announcement level of 8.97%-8.98% for Russian Railways’ Rb15bn October 20235.

Those notes, which were identical in size and tenor to this week’s deal, were originally priced at 9.2% in late September.

Solovyev said the fact that the new issue was able to come 21 bp tighter spoke to the high level of support for Russian credit among investors. 

The investor base for this week’s transaction contained several surprises. Russian accounts took just 33% of the issue, compared with 52% on the borrower’s outing in September, while participation by investors in Europe was also lower. 

UK accounts took just 10%, down from 30% last time, while allocations to continental Europe fell from 16% to 6%. Swiss investors took 8% of the deal.

New investors from Asia and the US took up the slack, accounting for 33% and 9% of final allocations respectively. Neither jurisdiction was represented in September’s deal. 

Leads declined to be drawn on the nature of the Asian investor base. Bankers noted, however, that the allocation to the region matched that to sovereign wealth funds, which were also a new addition to the distribution list.

Banks and private banks accounted for a further 39% of the deal, fund managers 23%, and insurers and pension funds 2%. 

Bankers said the choice of maturity for the deal had been challenging. “We had to make a decision on whether to do a seven year or six year issue,” said Solovyev. “Both were a good fit with Russian Railways' rouble maturity profile.

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